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BBA Outlines Plans to Scale Back Libor Rates After Scandal

Nov. 8 (Bloomberg) -- The British Bankers’ Association, the lobby group that oversees Libor, proposed cutting the number of currencies and maturities included in the benchmark within the next five months following the rate-rigging scandal.

The lobby group plans to end quoting rates in Australian and New Zealand dollars at the end of February, and the Canadian dollar, Danish kroner and Swedish kronor rates the following month, the London-based BBA said in a statement today. The group also proposed to stop publishing “interim maturities” such as the two-week, two-month and nine-month tenors for all currencies by the end of January.

The announcement follows a regulator’s review of the London interbank offered rate after Barclays Plc was fined a record 290 million pounds ($463 million) for rigging the benchmark. Martin Wheatley, a managing director at the Financial Services Authority, recommended cutting the number of quoted rates to as few as 20 from 150, because the lack of trades in some currencies and maturities makes it almost impossible for the banks that contribute to the rate to state their borrowing costs accurately.

The BBA also proposed stopping quotes for the sterling repurchase agreement, or repo, at the end of next month. The reductions will leave 30 Libor rates spread across five currencies and six maturities. The group plans to continue quoting overnight, one-week, one-month, three-month, six-month and 12-month Libor rates in dollars, euros, pounds, yen and Swiss francs. The lobby group is inviting feedback on the proposals within the next 30 days.

Wheatley also proposed stripping the BBA of responsibility for the rate and adopting criminal penalties for interest-rate manipulation.

Initial Feedback

“In the event that oversight of Libor is transferred away from the BBA prior to these proposals being fully implemented, any changes should be open to ongoing review by the new administrative body,” the BBA said. “However, based on initial feedback from stakeholders, the BBA feels that the time-frame proposed in this paper should be achievable.”

Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the BBA that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Liam Vaughan in London at lvaughan6@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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