THE DISCREDITED Libor interest rate could be replaced with two different benchmarks, according to one of the City’s top regulators.
Martin Wheatley, the boss of the Financial Conduct Authority which has been tasked with finding a replacement system, has proposed running a transaction-sourced index alongside the existing survey-based system.
With trillions of pounds worth of contracts linked to the existing Libor system Wheatley fears the sudden introduction of an entirely new system could unleash a wave of lawsuits and break existing agreements.
“If you change the definition, it’s almost certain that one side of every one of those trades would lose out and then would say: ‘We’re no longer bound by this,’” Wheatley told the Financial Times.
It is understood that no firm decision has been made and Wheatley is merely exploring the options available to him.
Last summer it was revealed that major banks, which send in estimates of their borrowing costs on a daily basis, were manipulating Libor.
Barclays, Royal Bank of Scotland and UBS have already accepted substantial fines for their involvement in the scandal, with other firms expected to be fined in due course.