Central bankers will join Bank of England Governor Mervyn King in September for a meeting on the possible future of the London interbank offered rate, with talks to be followed the next week by discussion among policy makers at the Financial Stability Board.
King suggested the meeting in a letter to his colleagues on the Economic Consultative Committee, an informal body that includes governors from the Bank for International Settlements, the BIS general manager and central bankers from India and Brazil.
“Discussions will begin amongst governors when they next meet on September 9th (as suggested in Governor King’s letter),” said Jeremy Harrison, spokesman for Bank of Canada Governor Mark Carney, who is also chairman of the FSB. The talks will “continue with supervisors, regulators, central banks and treasuries at the FSB when its Steering Committee meets the following week,” he said.
At least a dozen banks are being probed by regulators worldwide for potentially rigging the benchmark rates for at least $500 trillion of securities.
The FSB will consider alternatives to Libor, Carney said yesterday, adding he hasn’t done a broad consultation with the group’s members. Central bankers have already discussed “a coordinated global initiative to quickly and effectively restore the integrity of this vital process,” Harrison said.
A spokeswoman for the Basel-based BIS declined to comment. A spokesman for the Bank of England in London said that he wouldn’t comment on private correspondence. Spokesmen for the European Central Bank and Bundesbank in Frankfurt and the Bank of France in Paris declined to comment.
Carney told reporters the allegations about Libor are “deeply troubling,” adding that “public authorities have to play the leading role in determining what next with Libor, and if not Libor, what else to manage that transition.”
Carney added it’s possible the current Libor system, where banks report their estimate of the cost to borrow from each other over varying periods and in differing currencies, may not be fixable. “There is an attraction to moving toward obviously market based rates if possible,” he said.
Also speaking yesterday, U.S. Federal Reserve Chairman Ben S. Bernanke said there “still are problems with the current Libor system.”
“One strategy would be to switch to a market-based indicator,” he said during testimony to the House Financial Services Committee. Bernanke declined to endorse a specific rate, though he said possibilities include “repo rates, the OIS index, even potentially Treasury bill rates.” He was referring to the overnight indexed swap rate.