In support of transparent financial benchmarks by Darrell Duffie, Piotr Dworczak, Haoxiang Zhu published by VOXEU (2/2015).
Trillions of dollars’ worth of transactions depend on financial benchmarks such as LIBOR, but recent scandals have called their reliability into question. This column argues that reliable benchmarks reduce informational asymmetries between customers and dealers, thereby increasing the volume of socially beneficial trades. Indeed, the increase in trading volume may offset the reduction in profit margins, giving dealers who can coordinate an incentive to introduce benchmarks. The authors argue that benchmarks deserve strong and well-coordinated support by regulators around the world.