A recent report by Martin Wheatley, an official at the U.K. Financial Services Authority who's in charge of reforming Libor, suggests that the benchmark rate will continue to be based on banks' funding costs, according to the Wall Street Journal. But instead of relying solely on banks' estimates of those costs, regulators are likely to require that banks show as many transactions backing those estimates as possible.
The WSJ argues that Libor isn't likely to be replaced by some other measure because there's no other rate that would work for all the financial instruments that use Libor, and because reworking all of the many derivatives contracts currently based on Libor would be a huge job.
For a look at how Libor has been compiled, see Libor Flaws Enabled Rigging. Other recent coverage includes Asset Managers Weigh Libor Suits, BBA May Lose Oversight of Libor and Libor Committee Clings to Anonymity.
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