The LIBOR process has its weaknesses, but the existing set-up cannot be totally swept away without causing massive market disruption. We first raised concerns about LIBOR four years ago this week. We have reiterated our belief in the importance of LIBOR-type rates to industrial and commercial firms – the real economy. LIBOR is so embedded in countless financial contracts and arrangements that it must be refined and improved without jeopardising commercial contracts. The Wheatley proposals should achieve this. The ACT welcomes the decision to move operational responsibility from the BBA and to install a robust governance structure to supervise the process. Non-financial companies using LIBOR have had a real fear that banks might be unwilling to submit rates where good-faith judgements are necessary. To participate, the banks need a robust legal framework. Users too need confidence that there is a well-governed process and consider that this should involve the authorities, not a trade body. The FSA has asked for powers to require contributions from relevant banks and we welcome this. The proposed widening of the LIBOR definition to have regard to a bank’s funding rates from the wholesale money markets more widely is welcomed. The thin inter-bank volumes render a move to a 'transaction-only' or 'judgement-free' version of LIBOR impossible. Do not overlook that transactions can be vulnerable to manipulation, especially in thin markets. John Grout, ACT’s Policy and Technical Director, said:
Wheatley is spot on. There will be a lot of detailed decisions to be made as his recommendations are implemented and we look forward to contributing to that process.
---------- Ends ---------------- For further information please contact: John Grout, Policy & Technical, ACT T: +44 (0)20 7847 2575 (direct line) or +44 (0)20 7847 2540 (switchboard) E: jgrout@treasurers.org Martin O'Donovan, Deputy Policy & Technical Director, ACT T: +44 (0)20 7847 2577 (direct line) or +44 (0)20 7847 2540 (switchboard) E: modonovan@treasurers.org Anne Hogarth, Director of Marketing & Communications T: +44 (0)20 7847 2575 (direct line) or +44 (0)20 7847 2540 (switchboard) E: ahogarth@treasurers.org NOTES TO EDITORS 1. The ACT comments are in response to The Wheatley Review of LIBOR: final report 2. The full text of The ACT response to the Wheatley Review of LIBOR initial discussion paper is available here