Regulators Question Interest Rates From Sweden to Singapore

Bittar left Deutsche Bank last year and is now at Bluecrest Capital Management, Europe’s third-biggest hedge fund with $30 billion under management. Other banks involved in the probes include Lloyds Banking Group, Mitsubishi UFJ Financial Group, Royal Bank of Scotland Group, UBS, Citigroup, Barclays and JPMorgan Chase & Co. “Many of the ingredients which made it pretty easy to manipulate LIBOR and collude are common in other benchmarks,” Abrantes-Metz was quoted saying. She added, “Regulatory agencies are starting to take a look at those and there is a growing sense they need to change.”

Reuters reported that a meeting scheduled for September of central bankers and regulators will discuss whether LIBOR has been damaged beyond repair and perhaps needs to be replaced with another benchmark.

In a letter to other central bankers, Bank of England (BoE) Governor Mervyn King said that it was “very clear that radical reforms of the LIBOR system are needed.” King himself has come under criticism, as has Deputy Governor Paul Tucker, for a lack of action when earlier allegations of rate fixing surfaced.

Tucker has also testified to Parliament about a phone conversation he had with former Barclays CEO Bob Diamond about Barclays’ borrowing rates, which was interpreted by then-Chief Operating Officer Jerry del Missier as approval by the BoE to change its rate submissions. Tucker’s and Diamond’s interpretation of the call differed substantially.

According to a central bank source, King put the LIBOR issue on the agenda for the Sept. 9 meeting in Basel, Switzerland, of the Economic Consultative Committee of global central bankers. The following week, discussions will continue at the Financial Stability Board’s steering committee meeting. That meeting also includes financial regulators and is chaired by global financial regulator Mark Carney, who is also governor of the Bank of Canada.

On Wednesday, Fed Chairman Ben Bernanke and Carney posed the possibility that another standard will need to be devised as a means of restoring faith.

In the report, Carney said, “There are different alternatives if LIBOR cannot be fixed. If it’s structurally flawed and can’t be fixed—which is a possibility—there may need to be different types of approaches, and we need to think that through.”

He added, “There is an attraction to moving to obviously more market-based rates if possible.” It is crucial, he said, that markets have “absolute confidence” in the rate used for $550 trillion of interest rate derivatives contracts and that influences the cost of a range of financial products from credit cards to mortgages.

Bernanke mentioned Treasury bill rates as a possibility for a new benchmark, although he said the Fed did not as yet support a specific replacement. He also mentioned repo rates and Overnight Index Swap rates, which Carney also floated as possibilities.