Sunday

30th Apr 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.

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.

EU boasts unity on Brexit talks

EU leaders adopted the bloc's guidelines for the UK exit negotiations that will start in June, amid concerns that France could elect a president that would try to take it out of the EU.

Column / Brexit Briefing

May’s election juggernaut

The prime minister's Tories almost need not bother campaigning for the June election. There is no opposition worthy of the name.

News in Brief

  1. Vote of no confidence prepared against Spanish PM
  2. Syria to buy Russian anti-missile system
  3. Germany seeks partial burka ban
  4. Libya has no plan to stop migration flows
  5. EU has no evidence of NGO-smuggler collusion in Libya
  6. Poland gets 'final warning' on logging in ancient forest
  7. Commission gives Italy final warning on air pollution
  8. Romania and Slovenia taken to court over environment policies

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceCharlotte Hornets' Nicolas Batum Tells Kids to "Eat Well, Drink Well, Move!"
  2. ECR GroupSyed Kamall: We Need a New, More Honest Relationship With Turkey
  3. Counter BalanceParliament Sends Strong Signal to the EIB: Time to Act on Climate Change
  4. ACCARisks and Opportunities of Blockchain and Shared Ledgers Technologies in Financial Services
  5. UNICEFRace Against Time to Save Millions of Lives in Yemen
  6. Nordic Council of MinistersDeveloping Independent Russian-Language Media in the Baltic Countries
  7. Swedish EnterprisesReform of the European Electricity Market: Lessons from the Nordics, Brussels 2 May
  8. Malta EU 2017Green Light Given for New EU Regulation to Bolster External Border Checks
  9. Counter BalanceCall for EU Commission to Withdraw Support of Trans-Adriatic Pipeline
  10. ACCAEconomic Confidence at Highest Since 2015
  11. European Federation of Allergy and Airways60%-90% of Your Life Is Spent Indoors. How Does Poor Indoor Air Quality Affect You?
  12. European Gaming and Betting AssociationCJEU Confirms Obligation for a Transparent Licensing Process