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The Libor scandal has caused a stir in the global financial world, creating debate about whether this index rate needs to be reformed or replaced. At an AEI event on Thursday, Bob Eisenbeis of Cumberland Advisors stated that Libor should not be abandoned, but reformed and restructured around a transaction-based rate. A member of the Shadow Financial Regulatory Committee, Eisenbeis outlined the committee's options for reforming Libor. Robert Pickel of the International Swaps and Derivatives Association described the method for determining Libor rates as a polling approach analogous to a matrix of well-educated guesses, not unlike guessing someone's weight without a scale.
Allan Mendelowitz, former chairman of the Federal Housing Finance Board, outlined his criteria for evaluating alternatives to Libor, emphasizing that any alternative index must fit the market purpose that it serves. Mendelowitz suggested that one feasible alternative to Libor would be the market for Discount Notes (DNs) of the Federal Home Loan Bank System. Sean Tully of the CME Group, however, discussed how this alternative does not fit the purpose of large, international banks or the international syndicated loan market. Mike Moore, an independent mortgage-funding consultant, concluded by considering the personal repercussions for traders that had tried to manipulate Libor rates and the inertia of the present Libor arrangements.
The Libor scandal has made it apparent to all that the most widely used interest rate index in the world rests on shaky foundations: on a survey, not actual transactions, and moreover, on a survey subject to attempted collusion and manipulation. The scandal has also highlighted the irony in the fact that the key interest rate index for America’s currency is set by a process controlled in Britain, with the British Wheatley Review recommending that Libor be brought under British regulators.
Can Libor be reformed? If so, how? Should it be replaced? If so, with what? How should Libor relate to the huge American mortgage market? Our panel of experts will address these issues.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Alex J. Pollock, AEI
Robert Eisenbeis, Cumberland Advisors
Allan Mendelowitz, Former Chairman, Federal Housing Finance Board
Mike Moore, Independent Mortgage Funding Consultant
Robert Pickel, International Swaps and Derivatives Association Inc.
Sean Tully, CME Group
Alex J. Pollock, AEI
Question and Answer Session
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Robert Eisenbeis is the vice chairman and chief monetary economist at Cumberland Advisors, where he advises the company's asset managers on US economic and financial market developments and their implications for investment and trading strategies. Eisenbeis was formerly executive vice president and director of research at the Federal Reserve Bank of Atlanta, where he advised the bank's president on monetary policy for Federal Open Market Committee deliberations and was in charge of basic research and policy analysis. Previously, he was the Wachovia Professor of Banking at the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill. He has also held senior positions at the Federal Reserve Board and Federal Deposit Insurance Corporation. Eisenbeis is a member of the Financial Economists Roundtable and a fellow of the National Association of Business Economics.
Allan Mendelowitz is the former chairman of the Federal Housing Finance Board. Following the financial crisis of 2008, he co-founded and co-lead the Committee to Establish the National Institute of Finance, which aimed to pass legislation to correct the government’s deficiencies in data and analytics to better regulate financial institutions and markets. In that capacity, he developed and executed the committee’s legislative and communications strategies that resulted in the creation of the Office of Financial Research in the Dodd-Frank legislation. Previously, he was chairman and member of the board of directors of the Federal Housing Finance Board, the independent federal regulatory agency that was responsible for regulating the Federal Home Loan Banks. Before joining the Finance Board, Mendelowitz served as executive director of the US Trade Deficit Review Commission, a congressionally appointed bipartisan panel; executive vice president of the Export-Import Bank of the United States; and as the managing director for international trade, finance, and economic competitiveness at the US Government Accountability Office (GAO). In that capacity, he was responsible for hundreds of GAO reports and related accomplishments, and he testified before the US Congress more than 140 times. In 1980, Mendelowitz was the representative of the comptroller general at the Chrysler Corporation Loan Guarantee Board and a principle negotiator of that transaction. In that capacity, he was directly and personally responsible for the inclusion of warrants in the transaction that netted the US Department of the Treasury a gain of more than $300 million. Mendelowitz was formerly an economic policy fellow at the Brookings Institution and on the faculty of Rutgers University, where he taught courses in international trade and finance and urban and regional economics. His articles have appeared in the Journal of Business, the National Tax Journal, the Journal of Policy Analysis and Management, the Financial Times, Risk Professional, the American Banker, and other publications.
Mike Moore has worked in the financial services and banking industry for over 30 years. His experience includes successfully managing trading and investment businesses in multibillion dollar franchises to hands-on execution in a variety of markets, including fixed-income securities, residential mortgages, commodities, and off-balance-sheet derivatives. From 1991 to 2005, Moore was executive vice president for financial markets for the Chicago Federal Home Loan Bank, where he helped lead in the creation and operation of Mortgage Partnership Finance (MPF), a mortgage-origination platform utilizing a unique credit-risk sharing arrangement between Federal Home Loan Bank (FHLB) members and mortgage investors. He designed and executed $1 billion in private-label, mortgage-backed securities using MPF loans, to date the only such transactions ever done by FHLBs. He was instrumental in opening global bond markets for FHLB debentures, successfully launching over $10 billion FHLB Global Bonds for the Chicago Bank throughout Europe and Asia. In 2006, Moore became a founding partner of a mortgage investment company in Chicago. Before joining the Chicago FHLB, Mike worked for banks in Kansas City, Missouri; Jacksonville, Florida; and Birmingham, Alabama. He began his career with Merrill Lynch in their Commodity Division.
Robert Pickel is the CEO of the International Swaps and Derivatives Association Inc. (ISDA), a position he previously held from 2001 to 2009. Pickel served as executive vice chairman from 2009 to 2011 and as general counsel from 1997 to 2001. Before joining ISDA, Pickel was assistant general counsel in the legal department of the Amerada Hess Corporation, an international oil and gas company, from 1991 to 1997. He has also worked at the law firm of Cravath, Swaine & Moore in New York and London, where he represented ISDA in a variety of matters.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and the chairman of the board of the Great Books Foundation.
Sean Tully is managing director of interest rate products at the CME Group, where he is responsible for leading and developing the company's global interest-rate business. Tully's financial services career spans more than 20 years, including most recently serving as managing director, global head of fixed income trading at WestLB in London. During his tenure at WestLB, he held roles of increasing responsibility including managing director, regional head of derivatives, Americas; and managing director, global head of rates, emerging markets and credit trading in London. He also traded interest-rate derivatives at Citibank and Greenwich Capital, running the global team in the US dollar interest-rate swaps at Citi, and as a proprietary trader at Greenwich Capital. He is the author of "Restoring Confidence in the Financial System, See-Through Leverage: A Powerful New Tool for Revealing and Managing Risk" (Harriman House, 2010).