Libor Lending Rate “Major Overhaul” is Major Whitewash
The Libor interbank lending rate will get a “a complete overhaul” among which a radical cutting of the number of rates it offers will be included, as well as tough regulatory oversight, according to a new administrator. The announcement was made Friday, according to FT. The UK regulator will announce the shakeup in a bold effort to restore confidence in the London Interbank Offered Rate in the aftermath of a manipulation scandal that has implicated more than a dozen financial institutions on three continents.
Nearly half a quadrillion in contracts across the planet are linked to the benchmark rate, but since Barclay’s 290 million pound settlement with UK and US regulators Libor has been marked by corruption. According to regulators, it will be no problem to simply press the reset button.
“Today we press the reset button,” Martin Wheatley, the Financial Services Authority managing director, plans to say in a speech in the City of London. “Libor needs to get back to doing what it is supposed to do, rather than what unscrupulous traders and individuals in banks wanted it to do.”
Britain’s coalition government required the reform of the Libor interbank interest rate setting scam, which had grown beyond its original tasks of governance of financial transaction.
“We started out with an open minded [about whether it] would be possible to move to a different rate, and the answer is no,” he told Financial Times. Libor will persist dependent upon daily estimates from panels of banks of current interbank borrowing rates, but sponosrhip will move from the British Bankers’ Association to a “full independent and regulated administrator.” Lady Hogg, head of Britain’s Financial Reporting Council, will lead the selection process.
The sweeping reforms call for dropping give currencies and 130 of the 150 daily fixings. The change allows rate-setting banks to concentrate on the rates and currencies that investors and borrowers use most. Banks had been letting traders influence their rate submission, according to Mr. Wheatley. He has called for FSA regulation of the rate-setting process and making Libor manipulation a crime prosecuted by the FSA.
Banks will have to now give reports to the regulator about how they arrived at their estimates and the FSA will approve the individual responsible for the submission of each bank. The reforms also call for an increased amount of banks to submit Libor estimates so as to minimize the influence of sole institutions. Libor panels had typically been comprised of 20 banks or fewer, compared to Euribor’s 40, which is set in Brussels. Wheatley said regulators are considering forcing banks that are active in interest rate derivatives and interbank lending markets to participate.
Banks that do partake would be allowed more privacy, as their submissions had been watched as a sign of financial health. Now, under the new practices, these reports would be kept confidential for three months. The British government intends to incorporate Wheatley’s recommendations into the financial reform bill that is moving through parliament.
“Today’s independent report is very clear – the self-regulation of Libor has failed,” said Greg Clark, financial secretary to the Treasury. The BBA last week voted to let go of control over Libor. It said in a recent statement that “The absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators, and we will work closely with the government and regulatory bodies to ensure this.”
But, likely it is that no matter how “independent” a regulatory body the Libor-stoned banksters receive, it will most likely not have the power or intrepidness to undermine the bank’s power in the rate-rigging scheme. Any real remaking of the Libor-rate setting practices would result in an immediate deflationary spiral, as the corrupt basis on which it has operated enabled banks to improve their balance sheet. Banks do not want low interest rates which would drive down the values of their holdings and reveal large losses masked by rigged interest rates.
The rigging of Libor enabled banks to prop up prices of bonds, asset-backed financial instruments and other “securities.” The end result is that banks’ balance sheets look healthier than they in reality are. The low-rate policy of Libor also aided central banks like the Fed and Bank of England, enabling a rigging of government bond prices and thus “propping up a government bond market that would otherwise…be driven down by the abundance of new debt and monetization of this debt.”
The Fed was aware of the Libor manipulation, and so therefore supportive of it, since 2008. The Fed, Bank of England, commercial US and UK banks are one. Their policies aid one another. It is likely that any “independent” body charged with watching over the biggest banks on the planet’s will be bought-off or setup so as to aid the criminality.
Investigations into silver and gold manipulation remain dead in the water, and until the manipulation of real, historical money – that is, gold and silver – is put to an end, Libor will persist in one way or another.