BBA Rejects Major Changes in LIBOR Procedures
Despite the recent flap questioning the accuracy of LIBOR, no significant changes are planned in the key interest rate benchmark.
After looking into the issue the British Bankers Association issued a paper endorsing the current procedure for gathering the rates that go into the benchmark and proposing only minor changes designed to improve governance and expand participation.
On the key issue of anonymity, the BBA’s Money Market and Foreign Exchange Committes is sticking with the current definition:
The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonable market size, just prior to 11.00 London time.
While the majority of contributing banks say the current size of the panels is correct, the BBA is considering adding more banks, though none have yet stepped forward.
The BBA rejected the idea of a second US Dollar fix in London, but did agree to look into an additional benchmark that reflected the cost of dollars across the European region. “But to avoid any possible market confusion any potential new benchmark would not carry the LIBOR name, so maintaining the stability requested.”
The BBA said an enhanced governance structure will include expanding the FX and MM Committee to include rate users; a new scrutiny framework for data input into the fix as well as for the rates themselves; and the reissuing of more detailed requirements for the contributing banks. (HT MarketMovers)
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