| LONDON, March 28
LONDON, March 28 Britain's banking trade body
ruled out on Wednesday a "big bang" reform of the Libor interest
rate, saying it favoured gradual change, although rules may be
tightened for contributing banks after allegations the global
benchmark had been manipulated.
The British Bankers' Association put its London Interbank
Offered Rate under review last month after allegations surfaced
in 2008 that some contributing banks had rigged the rates to
improve their credit quality during the credit crisis.
Mapping out on Wednesday how Libor could "evolve", the BBA
said the review would include studying "a rigorous code of
requirements for all contributors and strengthening the
statistical underpinning of the contributions".
Libor is used as a reference for $350 trillion in
derivatives market securities, while $10 trillion in loans for
everything from mortgages to companies with shaky credit
histories are also pegged to it.
With so many contracts all over the world linked to Libor,
BBA Chief Executive Angela Knight said change had to be gradual.
"It will take place on a sensible and reasonable timetable.
It's all about evolution, confidence and no fireworks," Knight
told Reuters. "If you went for a big bang change, you have big
The British Financial Services Authority, U.S. Securities
and Trading Commission, European Commission, the U.S. Department
of Justice and the Japanese Financial Services Agency have
approached banks around the world to investigate their
involvement in determining Libor rates.
European banks including Barclays, UBS,
Deutsche Bank Lloyds Banking Group and HSBC
have been named as defendants in a variety of class
action complaints filed in the United States.
The investigations are examining whether banks mis-reported
the rate at artificially low levels for years, either to project
an illusion of strength in credit markets or to cash in on bets
struck by their own traders on the direction of Libor.
Under the review, a steering group of users and contributing
banks will also consider which other financial instruments
should be included for defining the rate.
Regulatory changes, such as the U.S. Volcker rule barring
proprietary trading at American deposit-taking banks and British
plans for bigger capital buffers for retail lenders, could
affect availability of instruments currently being used.
The Bank of England, Britain's Treasury and the UK FSA are
"engaged with the initiative and will be kept fully informed
throughout the process", the BBA said in a statement.
Knight said the UK authorities were expected to relay
information about the consultation to their international peers.
Between 7 and 18 banks contribute rates for each currency,
which are collected by Thomson Reuters. The company trims off
the top and bottom quartiles and averages the rest to produce
"This is not a backward-looking consultation and does not
touch on any investigations that have been taking place in any
way. This is a forward-looking review," Knight said.
The CME Group, a U.S. derivatives exchange, said it remained
committed to working with the BBA and others to make Libor "the
most robust short-term interest rate index available".
The London Money Market Association said it was important
that all money market participants had a choice of benchmarks
which should be developed to reflect the changes in markets.
Thomson Reuters said it would continue to support the BBA
and the financial community in the calculation and distribution