Bloomberg News

Draghi Faults Libor in Hope ECB Would Have Done Better

July 06, 2012

(Corrects date of fine in third paragraph in story published yesterday. See EXT2 for more Barclays coverage.)

European Central Bank President Mario Draghi said the scandal over rigged interest rates shows evidence of “faulty” management, and suggested his institution might have done a better job of it.

“It does show that a process that was considered fair and pivotal for the functioning of financial markets was not fair,” Draghi said at a briefing in Frankfurt today, commenting on Barclay Plc (BARC)’s admission that it manipulated the London interbank offered rate. “Frankly, I don’t know what the ECB would have done, but I hope we would have done better.”

Draghi’s remarks underscore concern that Libor, the benchmark for more than $360 trillion of global securities, has stopped being an accurate reflection of banks’ borrowing costs. Barclays, the U.K.’s second-largest bank by assets, was fined a record 290 million pounds ($453 million) on June 27 for rigging the Libor, a global benchmark, as well as Euribor, its equivalent in euros, starting as early as 2005.

“A lot of action ought to be undertaken to improve the governance of this process at both levels -- the level that contributes to the figures and the data, and the level that produces the benchmark,” Draghi said. “It’s quite clear that governance at these two levels was weak, if not faulty.”

Regulators are continuing inquiries into the manipulations. Bank of America (BAC:US) Corp., Citigroup Inc. (C:US), Royal Bank of Scotland Group Plc and UBS AG (UBSN) are among lenders who also under investigation.

The ECB today lowered its benchmark interest rate by 25 basis points to 0.75 percent, a fresh record, to bolster the euro-area economy and stimulate lending. The Bank of England, which has been drawn into the Libor scandal, raised its target for bond purchases by 50 billion pounds to 375 billion pounds.

To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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