British banks unveil Libor reform to stop rate rigging | Business| Economy and finance news from a German perspective | DW | 12.06.2013
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Business

British banks unveil Libor reform to stop rate rigging

The British Bankers' Association (BBA) has unveiled new rules for setting the Libor interest rate. The move comes in light of a major rate-rigging scandal and EU attempts to wrest Libor supervision from London bankers.

Rule changes to setting the London Interbank Offered Rate (Libor) included a three-month embargo on the publication of submissions of individual banks, which was aimed at avoiding possible manipulation of the interest rate, the British Banker's Association (BBA) announced Wednesday.

In addition, individual bank submissions would be made available in real time only to the Libor benchmark administrators for the purpose of calculating the rate and for monitoring and surveillance, the BBA banking lobby group said.

The new rules would come into effect on July 1, BBA added.

Libor is a key interest rate, denoting on average what international banks charge each other for borrowing money, as well as determining loan and credit interests to be paid by businesses and individuals.

The reform has come after financial market regulators last year found out that individual bankers in the UK and Switzerland had lied about interbank borrowing costs to boost their trading positions or make their bank appear more secure.

BBA also said that the rule changes followed recommendations laid out in the so-called Wheatley Review, an independent report initiated by the British government and published in September 2012.

The report had advised, BBA noted, that individual submissions should be published only after three months to reduce the potential for submitters to attempt manipulation, and to reduce any potential interpretation of a bank's creditworthiness. Real-time publication could create incentives to submit a falsified rate, BBA said.

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Supervision row

Meanwhile, the European Union has unveiled plans to wrest supervision of Libor and other benchmark rates from London and shift it to the Paris-based European Securities and Markets Authority (ESMA).

EU Financial Services Commissioner Michel Barnier said last week that he would draft legislation over the next few weeks, granting ESMA appropriate powers to supervise Libor, as well as oil and commodities indices, more effectively.

The CityUK, a representative body for Britain's financial services sector, said the British banking watchdog FCA should retain oversight of Libor. Supervision should be carried out by those with the closest knowledge of the market and who demonstrated the best market understanding, the group said in a statement Thursday.

uhe/msh (Reuters, AFP)

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