CBS eyeing whether Libor needs scrapping

OTTAWA (Reuters) - Central bankers and regulators will hold talks in September on whether the troubled global Libor (London interbank offered rate) 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 Libor 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.”

The concerns over Libor prompted scrutiny of lending benchmarks elsewhere. The European Central Bank (ECB) is putting pressure on the organizers of Euribor to shore up faith in the euro benchmark, sources familiar with the matter told Reuters.

Singapore and Hong Kong both announced reviews of the way interbank benchmark rates were set in the Asian financial centers, while in South Korea the anti- trust agency widened a probe into possible rate-fixing.

Bank of England Governor King put the Libor issue on the agenda of the Economic Consultative Committee of global central bankers that will meet in Basel, Switzerland, on Sept. 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.

“There is an attraction to moving to obviously more market- based rates if possible,” Carney said in his news conference.

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.