Danish Central Bank Says Cibor Banks May Have Breached Rules

Danish lenders providing quotes for the Copenhagen interbank offered rate may have breached competition rules, pushing the rate higher, the central bank said in a review of its role since the rate’s creation in 1988.

The central bank said that talks with the Danish Bankers Association had failed to clear up why Cibor was higher than similar rates in Europe after the financial crisis hit in 2007, and that it informed competition authorities in March last year that it would stop distributing Cibor. The bank said it told the authorities there “could be a breach of competition rules.”

The Copenhagen-based Nationalbank last year stopped administering the rate after finding it could no longer “assess the quality.” The bank released a five-page document yesterday detailing its role, as well as supplementary documents, amid a government investigation.

The bankers association declined to comment today on the report and said it will complete its own review this month.

“We’re continuing with our investigation and will answer questions when our investigation is published,” Mikael Winkler, a spokesman for the industry group, said by phone.

Government Review

Business Minister Ole Sohn is reviewing whether a full investigation of Cibor is needed after analysts at Stockholm- based SEB AB (SEBA) said Cibor had been fixed too high. Sohn said Aug. 3 in an e-mailed response to questions that he was taking action after industry efforts to improve transparency and adopt a second rate had stalled.

Cibor serves as a benchmark rate for about 20 percent, or $70 billion, of all Danish residential and commercial property loans.

Replacing Cibor is “not realistic” because of the large amount of outstanding contracts based on the rate, central bank spokesman Karsten Biltoft said Aug. 3 in an e-mailed response to questions. The bank has urged the industry to adopt a supplementary rate, a recommendation echoed in a report last year by a working group investigating alternatives.

Barclays Plc, fined a record 290 million pounds ($457 million) in June for attempting to rig the London interbank offered rate, will cease to provide bids for Cibor, reducing the number of quoting banks to seven, the Danish Bankers Association said Aug. 2.

Cibor shows what banks say they are willing to lend at, in contrast with Libor, which shows the rate at which banks say they can borrow. Three-month Cibor was fixed yesterday at a record low 0.3050 percent in Copenhagen.

To contact the reporter on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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