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One phrase I heard of the reform to move away from LIBOR is that it would create winners and losers. Can someone explain how this might happen?

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The reason that LIBOR is going away is because it was susceptible to manipulation by its member banks. So whether you're a "winner" or a "loser" depends on what the banks actually did and how it affected you.

If the banks artificially kept LIBOR rates low, then borrowers won (because they paid less interest) and lenders/investors lost (because they received less return on their investments). So the shift would be a "win" for investors/lenders (higher returns) and a "loss" for borrowers (higher interest rates).

The opposite would be true if banks artificially inflated rates.

It's hard to say if either actually happened, since there's not a good way to know what rates should have been to know if they were being manipulated.

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  • Good answer, but it seems a bit silly as they can still manipulate rates. LIBOR was just the conduit that will just be something else from now go forward. – Pete B. Dec 11 '19 at 14:14
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    @PeteB. The "something else" that is currently proposed is based off of market transactions (repos) versus a "committee" of 16 banks. So yes, there may be some room for manipulation, but I would argue that the market (in theory) will make that much harder (or expensive). – D Stanley Dec 11 '19 at 14:23

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