Monday

25th Sep 2017

EU promises change to scandal-tainted bank lending rate

  • An estimated 20 banking giants are under investigation over the Libor rate fixing scandal (Photo: stefan)

The EU is planning an overhaul of inter-bank lending rates tainted by the Libor and Eurlibor rate-fixing scandals.

At a public hearing in the European Parliament on Monday (24 September), EU internal market commissioner Michel Barnier said that new rules on the calculation of interest rates would be presented before the end of 2012.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

He told MEPs that the European Commission is working with other international regulators to restore public trust in the system, which he described as a "public good."

He added that a radical "culture-change" is needed to get away from the "anything goes attitude of the financial sector."

The hearing was held against the backdrop of new EU-wide rules on market manipulation which are currently being negotiated by MEPs and ministers.

In July, the commission announced plans to widen the scope of the legislation to include criminal sanctions on rate fixing.

However, Gary Gensler, chairman of the US Commodity Futures Trading Commission, who spoke to MEPs via videolink, went further by indicating that Libor should be scrapped.

Gensler said that there are "no rules or controls to prevent banks from intentionally or unintentionally herding together to distort the rate." he added that "if Libor does not reflect genuine unsecured interbank lending then maybe we should move to a replacement."

He pointed out that the Libor rate had been unchanged from the previous day in 85 per cent of cases. "Given that markets are volatile, why is Libor so stable?" he asked.

The parliament committee hearing came after public outcry about the Libor scandal which has engulfed Europe and the US.

In the summer, the chief executive of British banking giant Barclays, Bob Diamond, was forced out after the bank was fined almost £300 million (€375 million) for its involvement in rate-fixing. More than 20 banks are now believed to be under investigation over their role in the affair.

The Libor index calculates the London inter-bank interest rate, based on self-reported borrowing costs on unsecured loans between banks. It also determines the price of an estimated $800 trillion worth of financial instruments.

For his part, Gensler also said that the rapid decline in the volume of inter-bank loans when money markets seized up during the financial crisis in 2008 and 2009 had increased the scope for abuse. He added that "collusion is less likely if Libor rates are anchored on real transactions."

Meanwhile, Dan Doctoroff, the chief executive of financial information service Bloomberg, told MEPs that his company is establishing its own "Blibor" indices based on a range of real credit information, including credit default swaps and short term maturity bonds.

He noted that a "widespread lack of transparency and reliable information contributed substantially to the crisis."

Meanwhile, EU competition chief, Joaquin Almunia, revealed that the EU executive is investigating a series of cases where bank cartels had colluded to artificially raise interest rates.

Almunia, who described the Libor scandal as another product of the "age of deregulation," told euro-deputies that the commission has already moved against rating agency Standard & Poor's and Thomson Reuters over restrictions they placed on the availability of their market information.

He added that the blame for rate-fixing does not lie solely with banks and that politicians and regulators also bear responsibility, however.

Merkel survives election 'earthquake'

Christian-democrat leader set to rule Germany together with liberals and greens, but with a new troublemaker - the AfD party - on the scene.

May seeks EU grace period

Eagerly awaited Brexit speech was short on details, but May pledged to honour financial commitments while calling for a two-year transition deal after the UK left.

Analysis

Merkel-Macron: An EU motor in the making

Merkel's re-election is expected to revive the Franco-German EU motor, but the German leader and France's new ruler are still searching for a common vision.

News in Brief

  1. Merkel wins fourth term, exit polls say
  2. EU to hail 'aspirations' of former Soviet states
  3. UK says credit downgrade was wrong
  4. Dutch state appeals ban on taking air-polluting measures
  5. May proposes 2-year transition period after Brexit
  6. May to call on EU's 'sense of responsibility'
  7. Catalonia has 'contingency plans' for independence vote
  8. Last German polls confirm Merkel's lead

Stakeholders' Highlights

  1. EU2017EEEU Finance Ministers Agreed to Develop New Digital Taxation Rules
  2. Mission of China to the EUGermany Stands Ready to Deepen Cooperation With China
  3. World VisionFirst Ever Young People Consultation to Discuss the Much Needed Peace in Europe
  4. European Jewish CongressGermany First Country to Adopt Working Definition of Antisemitism
  5. EU2017EEFour Tax Initiatives to Modernise the EU's Tax System
  6. Dialogue PlatformResponsibility in Practice: Gulen & Islamic Thought
  7. Counter BalanceHuman Rights Concerns Over EIB Loan to the Trans Anatolian Pipeline Project
  8. Mission of China to the EUChina Leads the Global Clean Energy Transition
  9. CES - Silicones EuropeFrom Baking Moulds to Oven Mitts, Silicones Are a Key Ingredient in Kitchens
  10. Martens CentreFor a New Europeanism: How to Put the Motto "Unity in Diversity" Into Practice
  11. Access MBAGet Ahead With an MBA Degree. Top MBA Event in Brussels
  12. Idealist QuarterlyIdealist Quarterly Event: Building Fearless Democracies With Gerald Hensel