Calculation method for STIBOR does not instil confidence
News, Consultation responses Despite the STIBOR reference rate now being reformed, it will continue to be based to an excessive extent on judgements rather than actual transactions. There is also a lack of transparency regarding STIBOR and how it is calculated. These factors together mean that the Riksbank finds that the calculation method for STIBOR does not instil confidence. These comments are made by the Riksbank in its response to the open consultation from the Swedish Financial Benchmark Facility (SFBF).
It is important that the reference rates used on the financial markets are fair and instil a high level of confidence, as they are very important for the stability of the financial system. STIBOR is used in pricing many different kinds of financial contract, and thus affects the interest costs faced by households and companies, among others. It is therefore not acceptable from a consumer protection perspective that STIBOR should rely to such a large extent on the banks’ judgements.
For several years now, there has been international work on reforming reference rates, and there are two clear objectives here. Firstly, what are known as interbank rates (including STIBOR) shall as far as possible use actual transactions as a base for their calculation, instead of the banks’ judgements regarding rates. Secondly, new and completely-transaction based reference rates will be produced. Many countries have already produced this type of reference rate for the shortest maturity. This is also the case in Sweden, where the Riksbank, like many other central banks, has undertaken to calculate and publish a fully transaction-based reference rate, which has been named SWESTR.
These new reference rates are being increasingly used globally. As the Swedish financial system is so tightly interwoven with those of other countries, there is increased pressure on Swedish actors to follow suit. We thus need to make this transition in Sweden, too – by beginning to use SWESTR. The need to do so becomes even more obvious now that we see that STIBOR will continue to be based to a high degree on judgements, even after the reform.