Libor replacement - 2

Due to directions from FED, ECB, BoE etc there is a hype on #LiborReplacement which is due in 2021. Some argue that this will flow "by itself", similar to the change from national currencies to EURO in 1999-2002, some think that it will be "major disaster".

Indeed, many banking systems are relying on Libor. It starts from pricing and risk models which may use Libor as a core rate. Although such approach has changed since ~2007 when OIS rate was introduced as central rate for modelling, still there might be some entities who use Libor as a central quote.

Libor is often used as a reference rate, e.g. Libor+X%, to price commercial products towards corporate and retail (mortgage) markets. After 2021, all these contracts must be rolled. The change of Libor to the new rate perhaps will be done under zero-profit condition. That has to be calculated. Those who will do the calculations, remember, to account "in-arrears" settlement condition during transition period.

To add few words about causes of #Libor problem and possible solutions:

• Libor was quoted by few closely-related banks. It was tempting for them to manipulate the rate, so they did.
• One of the solutions to avoid manipulation is to invite a #thirdparty who will honestly and independently monitor the market and quote it. However, there are famous negative examples, when rating agencies were part of the deal too.
• Governments take the role into their hands and say that the publicly traded Short-rates will be the new Libor. This is regarded as not the most optimal solution and might turn to be the new handle for corruption or market manipulation when they tried to safe those who are "too big to fail".
• Another solution can be in hands of #CCP's. By definition, many banks today are obliged to process large portion of vanilla IR-contracts through CCP. Hence, these CCP are able to calculate the all-balancing rate out from the inherent cash flows. For the sake of stability of the market it would be useful to publish aggregated distributions of cash flows within financial system. By the way, CCP is also able to calculate implied contractual rates from these flows, hence it is possible to construct more reliable "new Libor" rate. That will embed an useful informational feedback. 
• Yet another possibility, is to build a distributed (blockchained) register for quotes which will be delivered by all participants. The open-source algorithm will calculate and publish the rate based on the information delivered by participants. The readonly-backdoor can be given to regulators for audit purposes. The design of such system can be elaborated further to ensure stability and avoid manipulations.