The Bank of England (BoE) has set out its vision for a “less Libor-centric world”.
Governor Mark Carney wants interest rates used to price financial contracts to be based on market transactions, creating “near risk-free rates”, rather than the judgements of banks.
The BoE and other central banks have been seeking alternatives to the London Interbank Offered Rate (Libor) based on actual market transactions, which would make the pricing of financial contracts harder to manipulate.
Banks have paid out billions of pounds in recent years for attempting to rig Libor, which is calculated by the lenders estimating how much they would be charged to borrow money from each other.
The role of setting Libor was later handed from industry body the British Bankers’ Assocation (BBA) to the independent Intercontinental Exchange (Ice).
But minutes from a 6 July meeting released by the BoE today show that this may not be enough to satisfy Carney.
According to the minutes, Carney noted that “a situation in which a judgement-based benchmark underpinned an estimated US $350 trillion-worth of contracts was not desirable”.
The minutes said: “The governor finished by noting that a shift towards robust, fully transaction-based reference rates was necessary and, over time, would happen.”
Chris Salmon, BoE executive director for markets, told the meeting that the BoE “is committed to supporting the adoption of near risk-free rates as alternatives to Libor”.
He added: “Put simply, we want to see a transition to a less Libor-centric world.”