Martin Wheatley’s Financial Services Authority (FSA) report into Libor will reportedly result in a regulated, transaction-based replacement system. The British Bankers Association’s (BBA) role will end. It is good that Wheatley is set to move swiftly and in the right direction – this change is not before time. This week, my firm published its twelfth report into the relative competitiveness of the world’s financial centres, and London retained the top spot – just. But the Libor scandal noticeably eroded trust in London as a financial centre. The good news is that rival benchmarks like Euribor, Jibar and others currently also use flawed Libor-like methodologies. So, if London takes the lead and makes rapid progress towards a demonstrably fairer system, it can repair that trust. And Wheatley’s report should be a very welcome first step.
Ian Harris is managing director of Z/Yen Group and co-author, with professor Michael Mainelli, of The Price of Fish.
It’s forlorn to hope that, by replacing Libor, London can recover its lost reputation in the interbank market. London wholesale financial services, legal services and others have gained immeasurably from centuries of global reputation for integrity – “the honour of an English gentleman”; “my word is my bond”; “as safe as the Bank of England”. With the Libor scandal, that has been replaced with a global reputation for sharp practice. That problem can’t be solved by replacing Libor with some other index, for it wasn’t some technical detail of the calculation method that was the problem; it was the systemic lack of probity. Our only way back is to build again, being prepared to keep our promises even when that’s painful. We must enforce contracts, enforce responsibility, keep inflation low, pay our debts, and wait for our international reputation to recover.
Andrew Lilico is chairman of Europe Economics.