Bloomberg News

Libor Review Panel Includes Banks Probed for Manipulation

March 28, 2012

The review, the second in four years, will include Barclays Plc, left, Royal Bank of Scotland Group Plc  and HSBC Holdings Plc, right, the London-based lobby group said in a statement today. Photographer: Jason Alden/Bloomberg

The review, the second in four years, will include Barclays Plc, left, Royal Bank of Scotland Group Plc and HSBC Holdings Plc, right, the London-based lobby group said in a statement today. Photographer: Jason Alden/Bloomberg

The British Bankers’ Association said a panel of lenders will review the London interbank offered rate, including some firms being probed for allegedly rigging the benchmark.

The review, the second in four years, will include Barclays Plc (BARC), Royal Bank of Scotland Group Plc and HSBC Holdings Plc (HSBA), the London-based lobby group said in a statement today. The three banks have all previously disclosed they are the subject of regulatory probes over the possible manipulation of the rate, the basis for $360 trillion of securities worldwide.

The BBA is under pressure to find an alternative way to calculate the measure, or cede control of it as regulators probe whether banks lied to hide their true cost of borrowing and traders colluded to manipulate the benchmark. Terry Smith, chief executive officer of interdealer broker Tullett Prebon Plc (TLPR), said in an interview this month there had been too great “a breakdown in trust” for banks to continue policing the rate.

It’s “more foxes charged with regulating the henhouse,” said Tim Price, who helps oversee more than $1.5 billion at PFP Group LLP, an asset-management firm in London.

Angela Knight, the former Conservative lawmaker and Treasury minister who is now chief executive officer of the BBA, didn’t return a phone call from Bloomberg News seeking comment. Officials at HSBC and RBS declined to comment, while a spokesman at Barclays didn’t return a telephone message.

‘Continuing Evolution’

“The BBA, the contributing banks and users of the rate are committed to the continuing evolution of Libor so that it adapts to meet the changing market and user requirements and general expectations,” the lobby group said.

The steering group will consider what financial instruments should be included for the purposes of defining the rate as well as code of conduct for all contributors, according to the BBA. The steering committee will also discuss whether to revise the “statistical underpinning” of Libor submissions, the BBA said.

Libor is generated through a daily survey of banks conducted on behalf of the BBA by Thomson Reuters Corp. in which firms are asked how much it would cost them to borrow from another for 15 time periods, from overnight to one year. A predetermined number of quotes are excluded and those left are averaged and published for individual currencies before noon.

Bloomberg LP, the parent of Bloomberg News, competes with Thomson Reuters in selling financial and legal information and trading systems.

Steering Committee

Other members of the BBA steering committee include Zurich- based Credit Suisse Group AG (CSGN), London-based Lloyds Banking Group Plc (LLOY) and Chicago-based CME Group Inc. (CME:US), the world’s largest futures exchange. Other unidentified contributors to Libor and users of the benchmark will also be asked to participate in the review, the BBA said.

The U.K.’s Financial Services Authority, the U.K. Treasury and the Bank of England will participate in the committee’s work and be kept informed of their efforts, the BBA said.

Barclays said in a March 9 statement that regulators may recommend legal proceedings against it as part of their probes into possible manipulation of interest rates. Edinburgh-based RBS has dismissed employees amid investigations into Libor, while HSBC is among at least seven banks being examined as part of a probe into whether traders sought submissions that would benefit their interest-rate derivative positions.

Questions about the accuracy of Libor were first raised by the Bank for International Settlements, the central bank for central banks, in a March 2008 report that indicated lenders were “wary of revealing” information that could signal they were struggling to borrow funds during the global credit crunch.

Three months later, the BBA later increased the number of banks that contribute to Libor and said it would require lenders to justify any discrepancies between their rate submissions with those of competitors. Banks that repeatedly proposed rates out- of-line with rivals would be removed from the process, the BBA said at the time. The changes were the first since 1998.

To contact the reporters on this story: Jesse Westbrook in London at jwestbrook1@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

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


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