Central bankers eyeing whether Libor needs scrapping

Wed Jul 18, 2012 5:12pm EDT
 
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By Randall Palmer

OTTAWA (Reuters) - Central bankers and regulators will hold talks in September on whether the troubled global Libor interest rate can be reformed or whether it is so damaged that the benchmark of borrowing costs should be scrapped.

Bank of England Governor Mervyn King told fellow central bankers in a letter that it was "very clear that radical reforms of the Libor system are needed".

Fed Chairman Ben Bernanke and global financial regulator Mark Carney, who is also governor of the Bank of Canada, on Wednesday floated possible alternatives to the London interbank offered rate, which some bankers manipulated in the 2007-09 financial crisis.

"There are different alternatives if Libor cannot be fixed," Carney told a news conference in Ottawa.

"If it's structurally flawed and can't be fixed -- which is a possibility -- there may need to be different types of approaches, and we need to think that through."

King put the Libor issue on the agenda of the Economic Consultative Committee of global central bankers that will meet in Basel, Switzerland, on September 9, a central bank source said.

The discussions will continue there the following week at the Financial Stability Board's steering committee, which is chaired by Carney and which also includes financial regulators.

Libor is used for $550 trillion of interest rate derivatives contracts and influences a wide array of financial products from mortgages to credit cards, and Carney said it was crucial that markets be able to have "absolute confidence" in it.   Continued...

 
Bank of England chief Mervyn King speaks before a parliamentary committee in London in this still image taken from video July 17, 2012. REUTERS/UK Parliament TV via Reuters TV