There is to be a ‘complete overhaul’ of Libor under new proposals published today by the Treasury, in the wake of the scandal that engulfed first Barclays, then others, earlier this year. A new framework will drastically reduce the number of rates that can be offered under Libor, and will involve appointing a new administrator and ramping up regulatory oversight to prevent future abuses of the system.
Martin Wheatley, is the author of the report, and is also head of conduct and CEO designate at the FSA. He said in a speech at Mansion House following its publication, that even though traders had been ‘unscrupulous’ and that their behaviour had been ‘shocking’, the system could nonetheless be repaired. ‘The distributing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust,’ – you’ve got that right – ‘it has torn the very fabric that our financial system is built on.’ The new proposals suggest a requirement that banks provide data to the regulator to prove that the Libor rates that they submit are a truthful reflection of their actual borrowing costs.
For those not familiar with the term, Libor is the London Interbank Offered Rate, and it determines the interest that banks pay when borrowing from each other commercially. It dictates the interest paid on trillions of dollars worth of transactions the world over. The scandal kicked off because it was found that some traders were attempting to artificially manipulate the rate in order to create a stronger trading position for their bank. It is thought that the practice could have cost savers and people with mortgages hundreds of millions of pounds. Not cool.
The first bank to get caught up in the furore was Barclays, which was fined a total of £280m between US and UK financial authorities, before the CEO Bob Diamond, Chairman Marcus Agius and COO Jerry del Missier all ended up resigning over the issue.
The Serious Fraud Office and the FSA are still investigating the wider scandal, so you can expect to see more banks facing huge payouts. Perhaps a few more directors’ heads on platters, too.