Sunday, 9 September 2012

King to Lead Central Bankers Seeking Solution to Libor Damage

By Jennifer Ryan - Sep 9, 2012 3:01 AM GMT+0400

Bank of England Governor Mervyn King will lead a meeting of global central bankers today as they grapple with the collapse in confidence in Libor, the benchmark rate for more than $500 trillion of securities.
At least a dozen banks are being probed by regulators worldwide for potentially rigging the London interbank offered rate. King is scheduled for talks with counterparts from the world’s largest economies in Basel, Switzerland, from today. The meeting is held every two months under the auspices of the Bank for International Settlements.
King called the gathering in July after Barclays Plc (BARC) was fined 290 million pounds ($462 million) for its role in manipulating Libor, which triggered the resignations of its chairman, chief executive officer and chief operating officer. The Bank of England became embroiled in the scandal, and lawmakers criticized it last month for “naivety” in its handling of questions about the rate as far back as 2007.
“The central banks have somehow got to get moral integrity back in the financial system, and King will feel this himself,” said Marcus Miller, a professor of economics at the University of Warwick, England. “If you can’t trust London to fix the rate, what’s the banking system all about?”
The BIS was founded in 1930 and acts as a central bank for the world’s monetary authorities. King took over as chairman of its Global Economy Meeting and the Economic Consultative Committee in November.
“We’re very pleased that there is awareness globally on the need to tackle how interbank lending rates are set,” said Stefaan De Rynck, a spokesman for the European Union’s financial services chief, Michel Barnier. “For action to restore trust in interbank lending rates, including Libor, co-ordination is needed at global level.”

Libor Poll

Financial Stability Board Chairman Mark Carney said on Sept. 7 that the discussions will be “preliminary.”
“I wouldn’t anticipate any announcements or decisions,” Carney, who is Bank of Canadagovernor, said at a press conference near Calgary.
Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. Forty- four percent of investors in a Bloomberg Global Poll published on Sept. 7 said it will be supplanted by a more regulated model within five years. Thirty-four percent predicted the rate will continue to be set by banks in the current fashion, while 22 percent said they didn’t know.
The quarterly poll of 847 investors, analysts and traders who are Bloomberg subscribers was conducted Sept. 4.
In the U.S., the House Financial Services Committee is scrutinizing the Federal Reserve Bank of New York about its knowledge of the underreporting of Libor.
Carney has said the FSB will consider alternatives to the rate, while the European Union has also pledged tougher supervision of Libor, Euribor and other market indices. It’s weighing options such as forcing banks to provide real transaction data rather than estimates and increasing the number of lenders involved in the rate setting.
To contact the reporter on this story: Jennifer Ryan in London at
To contact the editor responsible for this story: Craig Stirling at