Saturday

27th Aug 2016

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

Gulen faithful at work in EU capital

Persecuted in Turkey as the alleged authors of the July putsch, the followers of Islamic teacher Fethullah Gulen stay active as ever in the EU capital.

Italy earthquake is test for Renzi

Italian prime minister is expected to present a quick reconstruction plan and request more budget flexibility from the EU after this week's tragic earthquake.

News in Brief

  1. Hungary plans to reinforce border fence against migrants
  2. France's highest court suspends burkini ban
  3. Greeks paid €1bn more in taxes in June
  4. Greek minister denounces EU letter on former statistics chief
  5. Turks seeking asylum in Greece may cause diplomatic row
  6. Merkel becomes digital resident of Estonia
  7. Report: VW will compensate US dealers with €1bln
  8. EU mulls making Google pay news media for content

Stakeholders' Highlights

  1. GoogleBrussels - home of beer, fries, chocolate and Google’s Public Policy Team - follow @GoogleBrussels
  2. HuaweiSeeds for the Future Programme to Bring Students from 50 countries to China for Much-Needed ICT Training
  3. EFASpain is not a democratic state. EFA expresses its solidarity to Arnaldo Otegi and EH Bildu
  4. UNICEFBoko Haram Violence in Lake Chad Region Leaves Children Displaced and Trapped
  5. HuaweiMaking Cities Smarter and Safer
  6. GoogleHow Google Makes Connections More Secure For Users
  7. EGBAThe EU Court of Justice Confirms the Application of Proportionality in Assessing Gambling Laws
  8. World VisionThe EU and Member States Must Not Use Overseas Aid for Promoting EU Interests
  9. Dialogue PlatformInterview: "There is a witch hunt against the Gulen Movement in Turkey"
  10. ACCAACCA Calls for ‘Future Looking’ Integrated Reporting Culture With IIRC and IAAER
  11. EURidNominate Your Favourite .eu or .ею Website for the .EU Web Awards 2016 Today!
  12. Dialogue PlatformAn Interview on Gulen Movement & Recent Coup Attempt in Turkey