INTERNATIONAL regulators are considering abandoning key interbank lending rate Libor in the wake of last year’s scandal, it was announced yesterday.
Britain’s Martin Wheatley will head up a taskforce to consider the future of the benchmark and others like it, after traders at big banks were revealed to have fiddled the rate.
The group, launched by the Financial Stability Board, a body headed by incoming Bank of England boss Mark Carney, will consider what scrapping Libor would mean and how it could be replaced.
A key problem along the way is that up to $500 trillion (£424 trillion) worth of contracts worldwide are based on the rate.
The taskforce has to consider what scrapping the rate would mean for those contracts, whether they could be shifted to a replacement and how the transition would be managed.
On top of that, there is enormous demand for a benchmark which indicates the rate at which banks lend to each other.
Any replacement for Libor would have to reflect that, and it is so far unclear there is any superior way of creating that benchmark.
It is not believed the rate could practically be scrapped within the next three years.
An alternative to scrapping the rate would be to toughen up the rate’s compilation, with more supervision of bankers making submissions to the body administering Libor.