G20's FSB recommends multi-pronged reform to Libor

LONDON, July 22 Tue Jul 22, 2014 10:12am EDT

LONDON, July 22 (Reuters) - Global regulators have proposed a multi-pronged approach to making interest rate benchmarks like Libor less prone to manipulation.

Ten banks and brokerages have paid around $6 billion to date to settle U.S. and European regulatory allegations that they manipulated the London Interbank Offered Rate, or Libor, a benchmark against which around $450 trillion of financial products from derivatives to home loans are priced worldwide.

The Financial Stability Board (FSB), which advises the G20 group of leading economies on regulation, said it agreed with market practitioners on a so-called "multiple-rate approach".

This will involve strengthening existing interest rate benchmarks like Libor and its continental European counterpart Euribor by underpinning them to the greatest extent possible with market transactions data, the FSB said.

The approach also includes developing alternative "nearly risk free reference rates", it added.

"There are several reasons for this heterogeneity including differing availability of underlying transactions data, different markets for near-risk-free rates, and different levels of willingness and scope to use supervisory or other means to encourage market participants to adapt to the multiple-rate approach," the FSB said in a statement.

(Reporting by Huw Jones, editing by Matt Scuffham)

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