Bank of England governor Sir Mervyn King and US Treasury Secretary Timothy Geithner discussed their concerns about the Libor inter-bank rate system as early as 2008, documents show.
Mr Geithner, who at the time was head of the New York Federal Reserve, called for changes to the system…He said these should include procedures to prevent misreporting.
Of course, if anyone was really concerned they could have proposed turning LIBOR into an actual benchmark – instead of a traditional reference, vague and fudged for over a century.
Several banks are being investigated for allegedly manipulating Libor, the daily figure which reflects the amount that banks are charging to lend each other money and which is the benchmark for millions of financial transactions.
It stands for London Interbank Offered Rate and is made up of banks’ own estimates of their borrowing costs.
The operative words being “own estimates”.
Barclays has agreed to pay a fine of £290m to UK and US authorities for giving inaccurate figures and trying to manipulate Libor rates between 2005 and 2008, either for profit or to reduce concerns about the extent of financial stress it was under.
Want to “fix” LIBOR? Make it a genuine benchmark. Codify the information desired. Set standards identifying the information settled on for basis at each bank made part of the system. Establish reporting time and methods. Track it, regulate it like any other index. Then, all the who-hah about manipulation has standards to evaluate in court over questions of fraudulent reporting, whatever.
Otherwise, this discussion is foolish – since nothing has changed since the 19th Century.