The bad news is that it has become increasingly clear that we cannot rely on Libor in the long term. Libor is meant to measure banks’ short-term unsecured funding costs. But the reality is that bank funding markets have changed, and banks no longer take enough wholesale term deposits to form the basis for a robust transaction-based benchmark. As we have pointed out in the past, the result is that Libor is overly reliant on expert judgement rather than actual transactions. That situation is neither desirable nor sustainable. There is also a risk that panel banks might withdraw from Libor and precipitate its collapse, which raises obvious financial stability concerns. So there is a clear need for the authorities and market participants, across every sector, to come together, and transition to alternative benchmarks. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Under the auspices of the FSB, authorities in the UK, US, Japan and Switzerland have worked with market participants to identify alternative benchmarks. In the UK, the market-led Working Group on Sterling Risk Free Rates recently confirmed SONIA as its preferred alternative to Sterling Libor. 12  Market participants in every sector and market that uses Libor now need to come together to identify and resolve issues, change business practices, and adopt alternative benchmarks. To support the next phase of this work, the Bank and FCA are today announcing that from January, the Sterling Risk Free Rate Working Group will have a new mandate and wider representation from across the market.

Finance is one of the largest sectors of the UK economy. Around 400,000 people are employed in financial 3  services in London alone, 1.1 million across the country as whole. Their enterprise contributes £ billion to our national income, £ billion to our exports and £ billion to the Exchequer, equivalent to two-thirds of the NHS budget. 4  Your work matters because finance is not an end in itself; financial markets serve the real economy. By financing firms that hire, invest and expand, markets drive growth. By opening up cross border trade and investment, they create new opportunities for businesses and savers. By transferring risks to those most willing and able to bear them, markets help households and businesses insure against the unexpected. 1  See Fair and Effective Markets Review Final Report, HM Treasury, Bank of England and FCA (June 2015). At: http://www.bankofengland.co.uk/markets/Pages/fmreview.aspx 2 See BIS Triennial Bank Survey (at http://www.bis.org/publ/rpfx16fx.pdf) and BIS OTC data at (https://www.bis.org/statistics/d12_1.pdf) and The City UK “Key facts about the UK as an international financial centre” (November 2016). 3 Workforce jobs and financial services jobs in London (ONS). 4 GDP and exports data (ONS), tax revenues from PWC/City of London “Total Tax Contribution of UK Financial Services” and NHS Budget data at: http://www.nhs.uk/NHSEngland/thenhs/about/Pages/overview.aspx. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Most fundamentally, your work matters because markets are the best mechanism to drive innovation, productivity, and prosperity. The Problem  Though markets are generally a force for good, markets can go wrong.