British regulators and banking groups discuss a possible comprehensive reform of how interbank rates are calculated in the context of accusations that the LIBOR index, used in a market of $350,000 billion was used to manipulate investors. The analysis takes place while in North America, Europe and Japan, authorities have expanded the investigations started a year ago on the manipulation of London InterBank Offered Rates (LIBOR) and other reference rates used to determine the costs of financial products, including mortgages and credit cards, according to the Financial Times.
Libor setting is not regulated by the Financial Services and Markets Act in the UK. Banks in the U.S. and Europe, and brokerage firms have fired several bankers in recent months because of allegations of abuse, by providing interest rates below the real levels in order to manipulate LIBOR to encourage trading positions.
British Bankers Association, which supervises LIBOR, and many of the banks participating in the determination of the index met Monday with Treasury officials, the Bank of England and Financial Services Authority for the first discussions on reforming the system of calculating interest rates. Rethinking the system will mean regulatory changes such as the imposition in 2015 of new requirements on the global liquidity of banks.
“As a part of regular analysis of LIBOR, several contributing banks met to consider future market development and regulations, and rules aimed at liquidity, regarding the parameters measured by LIBOR. A technical discussion with stakeholders and rate users will start soon”, according to the British Bankers Association. People close to the talks said that the analysis could include the review of how LIBOR rates are set to impose new oversight rules and standards of participating banks.
Industry participants have had the greatest contribution to debates, discussing market concerns regarding the establishment of interest rates and offering suggestions for its improvement. UK representatives present at the debate have not made it clear what is their preferred approach. LIBOR index is set daily in ten different currencies. Banks submit their cost estimates for loans, unsecured, to Thomson Reuters, which are used to calculate the daily rate.
The process is supervised by the Foreign Exchange and Money Market Committee, independent of the British Bankers Association and headed by a representative of a participating bank to the interest rates in at least three different currencies.
Here is a list of the 18 banks that contribute to the LIBOR rate:
- Bank of America
- Bank of Tokyo-Mitsubishi UFJ Ltd
- Barclays Bank plc
- BNP Paribas
- Citibank NA
- Credit Agricole CIB
- Credit Suisse
- Deutsche Bank AG
- HSBC
- JPMorgan Chase
- Lloyds Banking Group
- Rabobank
- Royal Bank of Canada
- Societe Generale
- Sumitomo Mitsui Banking Corporation
- The Norinchukin Bank
- The Royal Bank of Scotland Group
- UBS AG
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