The British Bankers Association will no longer set the UK Libor interbank rate after 26 years. The association of English banks made it known in a press release.
This decision made by the BBA was dictated by the various investigations which in recent months have held court on the Libor scandal: in fact, it turned out that the British Bankers Association arbitrarily manipulated the rate, the main reference for loans between banks, so as to obtain profits.
In the past few days, some newspapers had anticipated that Martin Wheatley, director general of the FSA, the English Consob, has requested new provisions to better control the English interbank rate. And the latter has made it known that she intends to collaborate with Wheatley's team in “the completion of their consultations on the future of Libor. […] If Wheatley's indications include a change in Libor responsibilities, the BBA will support it” reads a note.
Indeed, Wheatley intends to have the rate fixed based on real transactions.
The Libor case exploded in June when UK and US regulators fined Barclays €363m for attempting to manipulate the Libor and Euribor interbank rates; offenses that occurred between 2005 and 2009. The scandal prompted the entire leadership to resign. In the following months, the investigations expanded overseas, involving US banking giants such as Morgan Stanley and Citigroup. Recently, however, the Royal Bank of Scotland (RBS) could also be the second bank to pay a maxi fine, but the Bank would still like to be able to recover and "not repeat the mistakes of the past". Timothy Geithner, US Treasury secretary, at the time head of the Fed, and Mervyn King, who learned of the facts, were also recently investigated.
Libor is the interbank rate taken as a worldwide reference for all types of bank loans, including real estate loans and is indicated every day by the BBA on the basis of interbank financing costs reported by other banks. Rate control is not submitted from outside, so it is more likely to be manipulated. In fact, many traders would have modeled the rate at will to improve their position.
