September 25, 2012 4:35 pm
BBA agrees to bow out of Libor
The British Bankers' Association has agreed to drop its role in the setting of Libor, paving the way for government regulation of the scandal-riven interbank rates that serve as the benchmark for more than $350tn in contracts worldwide.
The trade body formally voted last week to relinquish its decades-long sponsorship of the London Interbank Offered Rates more than four years after questions were first raised about whether banks were lying in their submissions to the rate setting process.
The move came at the request of UK officials who plan to announce a new regulatory structure for the rate-setting process as part of a package of reforms due to be announced on Friday, two people familiar with the process said.
The reforms, which come out of a review led by Martin Wheatley, managing director of the Financial Services Authority, are aimed at restoring confidence in the rates after Barclays paid £290m to settle allegations that it had tried to manipulate Libor and Euribor, a similar interbank rate set in Brussels.
More than a dozen other banks and financial institutions are being probed on three continents for similar manipulation allegations. UBS has said it has conditional immunity for working with investigators, and Royal Bank of Scotland has said it expects to reach a settlement eventually.
The BBA has been trying to back away from the rate-setting process since 2008. At that time, the Bank of England and FSA were reluctant to become directly involved, so the trade body set up a new governance structure for the short-term lending rates, which are set in 10 currencies and 15 time periods. The rates serve as benchmarks for everything from US home mortgages to complex derivative transactions worth trillions of dollars.
The BBA said in a statement, “The BBA seeks to work with the Wheatley review team as they complete their consultation on the future of Libor. If Mr Wheatley’s recommendations include a change of responsibility for Libor, the BBA will support that.” It declined to comment further.
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The trade body formally voted last week to relinquish its decades-long sponsorship of the London Interbank Offered Rates more than four years after questions were first raised about whether banks were lying in their submissions to the rate setting process.
The move came at the request of UK officials who plan to announce a new regulatory structure for the rate-setting process as part of a package of reforms due to be announced on Friday, two people familiar with the process said.
The reforms, which come out of a review led by Martin Wheatley, managing director of the Financial Services Authority, are aimed at restoring confidence in the rates after Barclays paid £290m to settle allegations that it had tried to manipulate Libor and Euribor, a similar interbank rate set in Brussels.
More than a dozen other banks and financial institutions are being probed on three continents for similar manipulation allegations. UBS has said it has conditional immunity for working with investigators, and Royal Bank of Scotland has said it expects to reach a settlement eventually.
The BBA has been trying to back away from the rate-setting process since 2008. At that time, the Bank of England and FSA were reluctant to become directly involved, so the trade body set up a new governance structure for the short-term lending rates, which are set in 10 currencies and 15 time periods. The rates serve as benchmarks for everything from US home mortgages to complex derivative transactions worth trillions of dollars.
The BBA said in a statement, “The BBA seeks to work with the Wheatley review team as they complete their consultation on the future of Libor. If Mr Wheatley’s recommendations include a change of responsibility for Libor, the BBA will support that.” It declined to comment further.
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Copyright The Financial Times Limited 2012.
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