Central bankers and regulators will hold talks in September on whether to reform the London interbank offered rate (LIBOR) and may decide that it has been irreversibly damaged as a global benchmark of borrowing costs and should be scrapped.
Bank of England (BoE) governor Mervyn King has written to fellow central bankers admitting that it is “very clear that radical reforms of the LIBOR system are needed”. He is reported to have added the LIBOR issue to the agenda of the economic consultative committee of global central bankers that will meet in Basel, Switzerland, on 9 September.
The discussions will continue the following week at the international Financial Stability Board’s (FSB) steering committee, which is chaired by global financial regulator and Bank of Canada governor, Mark Carney, and includes other financial regulators.
Carney and US Federal Reserve chairman Ben Bernanke alluded on 18 July to possible alternatives to LIBOR, following revelations that some bankers manipulated the rate leading up to and after the financial crisis of 2008.
“There are different alternatives if LIBOR cannot be fixed,” Carney said at a news conference in Ottawa, Canada. “If it’s structurally flawed and can’t be fixed, which is a possibility, there may need to be different types of approaches, and we need to think that through.”
As further fines will no doubt be handed out to other banks under investigation for Libor manipulation in the coming months, the clamour to ‘do something’ about Libor is likely to grow. Barclays Bank, which lost its chief executive officer (CEO)
over the affair, cooperated with the US and UK regulators back in March 2012 as the investigation gathered pace and received a reduction in their $425.5m fine for doing so.
Other leading multimational banks under investigation will probably be hearing from the regulators soon, which will no doubt ramp up public and political calls for reform of the Libor setting mechanism. The British Bankers’ Association (BBA), which collates the Libor rates using Thomson Reuters technology, has already disavowed any wish to continue with its present role.
However, a London summit on the industry’s introduction of the technology cautions that testing and acceptance are still at an early stage and firms should proceed with caution.
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