EU egg-heads want to take Libor out of London

Supervision of the scandal-ridden inter-bank lending rate could be moved to Paris if bureaucrats have their way. George Osborne won't be the only one who isn't impressed.

by Emma Haslett
Last Updated: 10 Jul 2013

For years, the London inter-bank offered rate, aka Libor, aka the rate at which banks lend cash to one another, has been supervised in, well, London. But its future in Blighty has begun to look uncertain, after jealous EU bureaucrats suggested that they’d like to keep a closer eye on it by basing it in Paris. ‘Pibor’? Doesn’t have quite the same ring, does it?

To be fair, Libor has had its fair share of scandal: last year, Barclays, RBS and UBS were fined more than £1.6bn for fixing submissions to the rate. Not only did that cause a huge amount of hand-wringing among commentators, financial regulators, and every newspaper columnist ever, but it also brought about the untimely demise of then-Barclays chief exec Bob Diamond’s career.

From an objective point of view, then, it’s perfectly reasonable that a draft report by the European Commission wants to hand direct supervision of Libor to the Paris-based European Securities and Markets Authority. But it isn’t going to go down well with George Osborne, whose work to restore faith in Libor following the scandal will have been in vain.

Osborne has put Financial Conduct Authority Martin Wheatley in charge of reforming Libor. So far, Wheatley has suggested replacing it with a ‘dual-track’ system, which balances survey-based lending rates alongside transaction-liked indices. It could come into effect as early as next year – if, of course, London gets to stay in charge of the rate.

At least Osborne won’t be the only one upset at the European Commission’s draft report: it also includes plans to scrap markets’ freedom to regulate the benchmarks they use for exchange-traded financial instruments and contracts, which covers everything from commodities to interest rates. So expect the entire City of London to be disgruntled by the report.

The proposals won’t be published until summer, so we’ll have to wait until then to answer the pressing question of whether, though you can take the Libor out of London, it is possible to take London out of the Libor…

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