UK bank body proposes culling most Libor rates by April

by on November 8, 2012 6:09 pm GMT

Thu Nov 8, 2012 1:09pm EST

Nov 8 (Reuters) – Most Libor interest rates should
be scrapped by April to restore trust in what remains of the
tarnished benchmark that was rigged by Barclays and
other banks, a trade body said on Thursday.

The British Bankers Association (BBA) said only 30 of 150
variations of the London Interbank Offered Rate should remain
under a proposal it published for consultation.

After Barclays paid a record 290 million pound fine
for manipulating Libor in June, the government asked Financial
Services Authority Managing Director Martin Wheatley to come up
with changes to the benchmark which is used to price products
like home loans and credit cards worth $300 trillion.

Wheatley said thinly traded Libor rates should be scrapped,
recommending a cut to just 15 but gave no fixed timetable.

The BBA said discussions with market participants showed
that 30 rates should be kept.

The UK banking trade body proposed scrapping the sterling
repo rate by the end of December, and ending several maturities
in all 10 currencies used by the end of January.

Under the BBA plan, all remaining maturities based on the
Australian dollar, New Zealand dollar, Canadian dollar, Danish
crown and Swedish crown would be scrapped by the end of March.

From April only the overnight, one week, one month, three
months, six months and 1 year maturities would remain in euro,
Japanese yen, sterling, Swiss franc and U.S. dollar.

“I welcome the BBA’s first steps towards implementing a key
recommendation of the Wheatley review of Libor through its
consultation … which needs to be subject to an open process
and market feedback to ensure that enough time is given to allow
market users to adapt,” Wheatley said in a statement.

The BBA will be stripped of its Libor oversight role
sometime in 2013, another of Wheatley’s recommendations.

“In the event that oversight of Libor is transferred away
from the BBA prior to these proposals being fully implemented,
any changes should be open to ongoing review by the new
admininistrative body,” the BBA said in a statement.

The role of running Libor will be put out to tender.

Royal Bank of Scotland is expected to be the next
bank to be fined for trying to rig Libor as the authorities in
Britain, the United States and elsewhere pursue several lenders.

Libor is currently set by banks submitting quotes for rates
they believe they could borrow at from another bank but this is
likely to change in future, with more input from actual market
transactions into the process.