Where do we go from here? The events of the last few
years have shown us that banks cannot be relied upon to set the LIBOR at its
true rate. Not surprisingly a debate has been sparked as to the future of the
LIBOR.
A lot of the blame has been placed on financial liberalisation,
with Ojo, 2012, stating that the LIBOR fixing was ‘the most lethal consequence’
of deregulation. Although I agree that deregulation has played a strong part in
the LIBOR’s fate I feel that the sole blame cannot be placed on it. I tend
towards the argument put forward by Philipponat, 2012, that the banks have an ‘in-built
conflict of interest’ thus making it near impossible for them to settle on an appropriate
rate. He claims that in order for the trust of the general public to be
regained in the financial system we must move away from this characteristic. Yesterday,
U.S. regulator Gensler, indicated that he too thought that the end of LIBOR, as
we know it, was near. Although he felt that it was too big to be abolished, he
claimed that a new benchmark was needed at which to set the majority of
interest rates.
The Treasury’s reaction to the LIBOR scandal was the
publication of the Wheatley Review. The report clearly states that it feels
that the regulation of the LIBOR should be reviewed rather than it being replaced.
This report set new guidelines as to the regulation of the LIBOR. One of the
major changes which the report suggests is that LIBOR should be regulated by
the FSA rather than the BBA. This I feel would be a great step towards the
rebuilding of trust in the mechanism. It is also suggested that the submission
of quotes should be regulated as it is there where the most interference
occurs. It does, however, also suggest some alternatives, as can be seen in the
box below.
I do not think that the end of the LIBOR is in sight
despite personally believing that an alternative must be introduced. I am sure
that this is not the last time that the LIBOR will be all over our television
screens.
