UK watchdog to keep banks' Libor setting voluntary for now

Mon Mar 25, 2013 12:51pm EDT
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By Huw Jones

LONDON, March 25 (Reuters) - Banks' participation in compiling the Libor benchmark interest rate that was at the centre of a fixing scandal last year will remain voluntary when new rules come into force.

Britain's financial watchdog wants to restore credibility to Libor, a benchmark used to price products from home loans to credit cards worth $300 trillion globally, after some banks admitted to rigging it.

Regulators across the world are watching to see how the Financial Services Authority's (FSA) rules, due to come into force next month, will work out.

The European Union is considering whether to force banks to help compile Euribor, Europe's counterpart to the London Interbank Offered Rate (Libor), to safeguard its integrity.

Banks including Dutch lender Rabobank, Switzerland's UBS and U.S.-based Citigroup have said they no longer wanted to participate in the Euribor-setting process.

Regulators worry that if too many banks drop out, the quotes banks submit would become unrepresentative and the benchmark rate could be easily manipulated.

Banks submit an estimate of the rate at which they think they could borrow from another bank and these quotes are used to compile the benchmark.

The FSA, which put the issue of compulsory participation to banks last December, said on Monday it was still considering the feedback.   Continued...