Banks give up Libor control

 
Tim Wallace
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KEY interbank lending rate Libor will no longer be run by the British Bankers’ Association (BBA), the industry body announced yesterday, with regulators set to take control in the wake of the rate-fixing scandal.

Libor – which banks use as a benchmark interest rate and indicates whether lending conditions are good or bad – has always been run as a self-regulating index, but is now set for a major transformation after bankers at Barclays and other lenders were found to be giving the BBA false data for their own ends.

Closer scrutiny of the system in the wake of the scandal has revealed a range of other problems, not least that it could be based on estimates rather than real market data on days when the participating banks did too little business to generate a genuine lending rate.

Barclays received fines worth £290m in June over rate manipulation, with chief executive Bob Diamond and chairman Marcus Agius both resigning shortly afterward.

But Barclays is not thought to have been the only bank manipulating the rate, with several other major players expected to be similarly punished by the regulators in the near future.

Top regulator Martin Wheatley will on Friday publish his review of Libor, which is widely expected to include a new system of compiling the rate and of supervising the banks which contribute to it.

“The BBA seeks to work with the Wheatley review team as they complete their consultation on the future of Libor,” said a BBA spokesperson.

“If Mr Wheatley’s recommendations include a change of responsibility for Libor, the BBA will support that.”

But although the review has not yet been published, a source close to negotiations said the BBA had already found out it was going to be stripped of its rate-managing powers.

“This smacks of the BBA jumping before they are pushed,” he said.

Meanwhile senior RBS staff were yesterday reported to be implicated in the Libor scandal, with Bloomberg claiming an instant message conversation shows the bank’s former head of yen products in Singapore, Jezri Mohideen, instructed colleagues to lower the rate entry.

“Our investigations into submissions, communications and procedures relating to the setting of Libor and other interest rates are ongoing. RBS and its employees continue to cooperate fully with regulators,” said an RBS spokesperson.

Mohideen denies the claims.