FSA's Brilliant Ideas To Fix LIBOR
Sober Look | Aug 12, 2012 12:48AM ET
While the media has been focused on the LIBOR setting scandal, no one seems to be asking the question: why would banks want to contribute their LIBOR numbers at all? If you run a bank you have to pay your treasurer to make up a bunch of numbers every day and send them out to be scrutinized. Yes, it's multiple numbers - by currency, by maturity. The media, the regulators, and clients will all read your contributions and compare them to other banks. Chances are that once in a while your numbers will be considerably higher or lower than the average and you will be accused of wrongdoing. It's just the law of random numbers - sooner or later you'll be on the tail of the distribution.
Of course your treasurer can't be bothered with making up numbers daily, so she will delegate it to some junior folks. And you can only hope those junior employees don't have too many persuasive friends on the trading floor trading basis swaps. This is a serous headache. Most businesses want to get paid for their headaches. But LIBOR/EURIBOR is charity work - banks do it for free to get their name on the British Bankers Association (BBA) or the European Banking Federation (EBF) list. Makes them feel important. Tons of downside risk with no upside opportunity.
It is therefore likely that many banks will simply pull out of this exciting venture going forward, which could turn out to be a big embarrassment for BBA and EBF. So these organizations have been pushing regulators to force banks to submit the numbers and add more banks to the list. Make it the "cost of doing business". Seems the regulators may be receptive to that idea and are working on some "creative" solutions.
Reuters : - Mr. Wheatley said supervision of LIBOR could be handled by a "college of supervisors" from across the world — a system common for cross-border banks — with Britain in the chair. This may not satisfy other regulators, however.
How could it possibly not satisfy other regulators? Here is an idea. Why not have Mr. Wheatley and the other bureaucrats at the FSA set the LIBOR rate? At least he would earn his salary payed by the UK taxpayer as opposed to spending his time coming up with such "meaningful" proposals. And Mr. Wheatley's guesswork on LIBOR maybe just as accurate as that of the banks.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.