In April we implemented reforms to SONIA that boosted the volume of transactions captured by a factor of three to £ per day. 7  These areas are: the role that ‘cover and deal’ and similar trading models play in the FX market; how market participants adjust their pricing on E-Trading Platforms and when trading by voice; and, disclosures regarding last look practices. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  The focus now is on transition. Market participants in every sector and market that use Libor now need to come together to identify and resolve issues, change business practices, and adopt alternative benchmarks. In sterling, over 90 institutions, including banks, law firms, corporates, asset managers, trade associations and infrastructure firms, are directly involved in this effort supported by the Bank and FCA. Transition to SONIA will bring a number of benefits. Market participants can have the confidence that SONIA faithfully represents conditions in a deep underlying market. They can also be assured that SONIA’s design is robust to future changes in money markets because, if necessary, SONIA’s data inputs can evolve. Near risk-free rates like SONIA are a better reflection of the general level of interest rates than Libor – which is affected by fluctuations in the perceived credit quality of banks (as well as other technical factors as seen recently). Interest payments for benchmark users should be less volatile as a result, especially in times of stress, and products referencing SONIA should provide a better hedge for duration risk.

BIS central bankers’ speeches  3  To understand our prospects a bit better, we need to look at the likely behaviors of business and household sectors separately. Circumstances for the business sector are mixed with larger corporations generally in much better shape than smaller businesses. Many large corporations entered the recession with healthy balance sheets. While leverage1 did increase sharply in the recession, it has subsequently come back down to levels similar to the 1990s. Record profit margins have enabled large corporations to build substantial buffers of highly liquid assets. Large businesses are cautious because of concerns about the sustainability of growth and demand, political dysfunction, the health of the financial system and their ability to retain their access to credit throughout the business cycle. For smaller firms, the situation is generally more difficult. Because this sector has a higher exposure to real estate, falling real estate values pushed up leverage for this group and it remains well above previous historical highs. Although small businesses identify weak demand as their major problem, the availability of credit is also an issue. An improvement in their ability to obtain credit would seem to require some stabilization of real estate prices and a substantial increase in demand for their products and services. Turning now to the household sector, Chart 4 shows that a combination of the fall in interest rates, paying down of debt and debt write-offs has substantially lowered the share of income required for households to service their debt.