Brussels to intervene in the scandal to the handling of interest rate that shook the City in recent weeks, reports Financial Times. From the European Commission proposed attempts to manipulate the indexes within the European Union explicitly be declared illegal, and overhaul of rules for determining the Libor.
The need for clear and strict regulations were prompted by the fact that British bank Barclays was fined by U.S. and British regulatory authorities with a record 453 million dollars for an attempt to manipulate the interbank rate Libor. Scandal submitted their resignations CEO Bob Diamond, president of the financial institution Marcus Eydzhias and COO Jerry Del Mission. (See box)
For more and better rules
Commissioner Michael Barnier, responsible for financial services, will propose reforms to the legal framework related to distortions of European markets, so as to close potential “holes” and there are specific penalties for interference in the formation of indicators such as Libor and Euribor.
Barnier called counterfeiting of such basic indicators “betrayal” of potential “systemic consequences”. His intervention comes amid the first signs of political reaction in Washington.
U.S. Congressman Barney Frank told the FT, that “maymundzhulatsite” with Libor-a for their own benefit are “unprecedented.” While America is already doing illegally fixing prices of deceptive market, Democrat Congressman calls for hearing in the Senate and House of Representatives, which can be given to the structure of Libor-a.
His criticism is a response and those of the German Central Bank, which calls for reform of the system that manipulates “too easy”. “It [the system] is vulnerable to fraud,” says Andreas Dombert, board member of the Bundesbank.
There is a need for regulation?
Problematic issue will be taken into account at European level by Barnier, whose team will review the market indices to determine whether they should be placed under surveillance by the regulatory authorities. “I never believed that self-regulation for the public good,” Barnier told the FT. “I believe we must ensure that they are confident that the whole process more transparent,” he said.
The review, which is prepared, it may take several months. Within the next two weeks, Barnier will forward changes to legislation relating to market distortion. These reforms, which were first published last year, only indirectly cover the manipulation of market indices, weakness that MEPs as Alriyn McCarthy wanted to be corrected.
Much of the work of Barnier will overlap with a similar British study conducted by Martin Wheat – leading regulatory expert who examined the regulatory regime of Libor and other indices that are not currently subject to special monitoring or is it only partially.
British review is expected to close in autumn, in time for recommendations to be included in the final version of regulatory legislation, which will be presented to parliament. Barnier did not set a deadline and understands the complex issues that need to address these reforms.
Both analyzes will assess the extent to Libor and other indexes – which are used for determining the prices of things in certain commodities to charges for transportation of goods and interest rates – should be based on actual transactions or evaluations of particular institutions. While most market participants would prefer market-based estimates of some illiquid markets are simply not enough transactions, the basis on which to form a daily or weekly assessment.
Libor was set up in the 80s of last century as the average of estimates, because there was no easy way to calculate the percentage which is based on market performance for uncertain interbank lending. For short-term began to appear alternatives, but at the same time almost completely frozen because of financial crisis, the interbank market for loans with a duration of 3, 6 and 12 months underlines the hanging problem.