(NEW YORK) — A proposal to revamp the London Interbank Offered Rate, or LIBOR, could restore some confidence in the global interest rate that is widely used for bond yields and mortgage rates in the U.S., analysts say.
The British regulator, the Financial Services Authority, outlined a 10-point plan on Friday that proposed new regulation of the rate, including taking away responsibility from the British Bankers’ Authority, which oversees it.
The British bank, Barclays, and other U.S. and British agencies have admitted to submitting false information that is used to set the LIBOR. Barclays’ chief executive Bob Diamond resigned as a result of the scandal that erupted earlier this year. The bank paid a fine of $453 million to the U.S. Commodity Futures Trading Commission and British regulators.
The BBA sets the LIBOR each morning with estimates from several global banks regarding what it costs them to borrow.
The FSA’s review, led by its managing director Martin Wheatley, proposed that banks should be required to provide evidence of their estimates with relevant transactions.
Other banks, including JPMorgan Chase and Citigroup Inc., have been investigated by U.S. regulators for possibly falsifying information.
The BBA said in a statement after the proposal was published that it worked “very closely with the Wheatley Review of LIBOR and believes [Friday’s] report is an essential step.”
“The BBA has strongly stated the need for greater regulatory oversight of LIBOR, and tougher sanctions for those who try to manipulate it. The BBA Council has indicated it would support any recommendation that responsibility for LIBOR … be passed to a new sponsor,” the British trade group said in a statement.
Mark D. Luschini, chief investment strategist for the broker-dealer Janney Montgomery Scott, said the various regulatory authorities were trying to restore credibility to the global instrument upon which interest rates and contracts are set. While it’s possible that bankers’ false estimates have affected previous interest rates for better or worse, Luschini said the most recent proposals regarding LIBOR are not likely to affect it in the near future.
“That’s not likely to be disruptive to bond yields and bond convents already in place. That would be ridiculous,” he said.
If anything, the LIBOR will likely have more regulatory oversight and policing in its calculation “as opposed to the looser formula that allowed for the manipulation that inspired the investigation to begin with,” Luschini said.
Copyright 2012 ABC News Radio
Jose Pagliery, CNN
Heather Hourigan, CNN
Stephan Rockefeller, EastIdahoNews.com