at the outset. while there have been significant reforms, much remains to be done. 6 first, u. s. dollar libor needs to be updated to reflect current practices in unsecured funding markets and to be better anchored in actual transactions. second, and equally important, regulators need to work with market participants to encourage them to for more information on the role of libor in the global financial system, see wheatley review ( 2012 ), the wheatley review of libor : final report ( pdf ) ( london : hm treasury, september ). details on the principles may be found in board of the international organization of securities commissions ( 2013 ), principles for financial benchmarks : final report ( pdf ) ( madrid : board of iosco, july ). for the fsb ’ s reform proposals, see financial stability board ( 2014 ), reforming major interest rate benchmarks ( pdf ) ( basel, switzerland : fsb, july ). former federal reserve governor jeremy c. stein was the previous co - chair. the views expressed here are my own and should not be taken to represent those of the fsb ’ s official sector steering group or those of the board of governors of the federal reserve system. libor reform and the work still to be accomplished are discussed in wheatley review, the wheatley review of libor, in note 1. bis central bankers ’ speeches develop and adopt alternative reference rates that better reflect the current structure of u. s. financial markets, in which borrowing and derivatives transactions are much more likely to be secured with collateral. going forward, these alternative rates could replace libor as the reference rate for new interest rate derivatives and some other contracts denominated in u. s. dollars. these dual transitions will need to be managed very carefully to avoid disrupting the financing markets on which borrowers and lenders depend. but i believe that they are crucial to strengthening the stability of our financial system and to helping restore the public ’ s faith in its integrity. this problem is not just wall street ’ s concern ; every household with a libor - linked mortgage and every corporation with a libor - linked loan has an interest in more robust u. s. dollar reference rates. the basics i will take a few moments to explain the basic mechanics of libor for those who have not spent time on an interest rate swap desk. for almost three decades, libor was run by the british bankers ’ association. just a few months ago, a private corporation

the future. while it is also possible that activity in these markets could rebound, the threat that this form of borrowing may decline further, particularly in periods of stress, seems likely to remain. so let me pose a question : is it wise to rely on a critical benchmark that is built on a market in decline? clearly not. the risks to market functioning are simply too great. for example, market activity could decline to the point where publication of a rate becomes untenable. and many of the panel banks have expressed concerns about the ongoing legal risks of remaining on the panel. if the publication of libor were to become untenable or if we were to simply “ end libor ”, as some have urged, untangling the $ 150 trillion in outstanding u. s. dollar libor contracts would entail a protracted, expensive, and uncertain process of negotiating amendments to an enormous number of complex documents – a horrible mess and a feast for the legal profession, to be sure. it does not help matters that the hundreds of trillions of dollars ’ worth of derivatives contracts referencing libor do not, in general, have robust backups in the event that publication of a rate ceases. the fsb report identifies ways to improve u. s. dollar libor, and to create alternatives to it, while minimizing transition costs, particularly for end users who bear no blame for the misconduct. the proposed reforms come down to two simple ideas. first, u. s. dollar libor needs to be redefined to include a broader range of transaction types. doing so will make it more robust and will allow it to reflect actual bank funding costs, which is what the rate was intended to do in the first place. second, we need to promote robust alternatives to u. s. dollar libor that better reflect the secured nature of many of today ’ s financial market transactions. the seven firms that have settled consist of five banks ( barclays, lloyds bank, rabobank, rbs, and ubs ) and two brokers ( icap and rp martin ). bis central bankers ’ speeches updating u. s. dollar libor let me first address the efforts the federal reserve is considering, in cooperation with the libor administrator and u. k. authorities, to update the mechanics of u. s. dollar libor. our aim is to make libor more robust and more representative of current bank funding costs. in this regard, we