UK banking lobby is ready to give up Libor setting

AFP Photo / Ben Stansall
The British Bankers' Association (BBA) is going to hand over responsibility for setting Libor benchmark borrowing rate to the regulators, following a series of scandals over alleged rate rigging.

­The move anticipates a proposal from the UK regulators to take over the task of rate setting. On Friday Financial Services Authority chief Martin Wheatley is expected to reveal a report on the Libor rate, including a proposal to bring oversight of the Libor rate under the control of regulators.

"If Mr. Wheatley's recommendations include a change of responsibility for Libor, the BBA will support that," the BBA said in a brief statement on Tuesday.

The recommendations on the Libor are part of a proposed package of reforms aimed at imposing tighter control on the UK banking sector.
Wheatley has been leading a review of the banking rates begun after UK major Barclays paid $471.38 million to settle allegations on manipulating the Libor in June. Currently over a dozen global banks including Citigroup, HSBC, Credit Suisse and Deutsche Banks are under investigation in the UK, US, Japan and several other countries for allegedly providing false figures on borrowing rates between 2005 and 2009.

Libor was invented by the BBA in 1986 as an average rate for interbank lending. Libor is generated through a daily survey of 16 prime banks and calculated for 10 currencies. Fluctuations in the Libor rates affect prices of many financial instruments, such as corporate loans, inflation swaps, mortgages and currencies.

Libor has been criticized since 2008 when financial crisis dried up bank-to-bank lending. Experts have described the rate as unreliable, and have called for it to be abolished after Barclays was fined and more and more major banks were suspected in manipulation.