Here’s Why Libor’s End Is a Headache for Switzerland

For markets to continue to rely on benchmarks that were widely rigged is pretty clearly a bad idea. But coming up with a good replacement can be hard. That’s been the case in a number of countries looking to phase out Libor as an interest-rate benchmark in the wake of rate-manipulation scandals. But the stakes are especially high in Switzerland, whose central bank has been using a Libor rate as its main monetary policy target.

Swiss franc-Libor rates underpin about $6.5 trillion of financial products and are used to price about 80 percent of Swiss banks’ loans. The Swiss Average Rate Overnight, known as SARON, is Libor’s designated replacement for setting interest rates on items like loans and mortgages. SARON is based on overnight transactions between financial institutions in what’s known as the repo market. It’s been in place for a decade and is administered by the stock market operator SIX.