Banking industry calls for tough Libor punishments

Tim Wallace
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BANKERS who manipulate key interest rate Libor should face tougher personal fines in future, according to the industry body that oversees the benchmark rate.

A leaked letter written by British Bankers’ Association (BBA) boss Anthony Browne urges top regulator Martin Wheatley to ban rate-fixers from working in the industry again, and to name and shame those who have broken the rules.

However, the letter also revealed not every bank agreed with the proposals – hence the need for the BBA to push for regulatory action, rather than relying on improved internal controls and sanctions internally at banks.

The leak comes a day after the BBA revealed it is ready to give up control of Libor – the interbank lending rate which the industry uses as both a benchmark level and as an indicator of how good or bad credit conditions are.

The rate was established in the 1980s, and is compiled by 16 banks submitting estimates of their lending rates to the BBA every day.

But it came into disrepute when it emerged some bank staff were deliberately entering false estimates to manipulate the rate.

Martin Wheatley will reveal the findings of his investigation into Libor tomorrow, and is widely expected to demand it be based on real transactions rather than estimates.

That also means fewer currencies and fewer time periods will be part of the process – in some markets at the height of the financial crisis there were simply too few transactions being conducted to even attempt to base the Libor submission on real data.

However, Anthony Browne is adamant that Libor should not be abolished entirely in the wake of the scandal.

“The needs of users of the rate are very important,” he wrote in the letter which was leaked to Sky News yesterday.

“We understand that there is a long tail of existing contracts stretching into the future which use BBA Libor as reference rates.”

As a result, he also calls on Wheatley to ensure any streamlining or replacement of Libor is carried out over a long timetable to allow users to prepare for the change of interest rate benchmark.