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Briton tightens screws on troubled banks

Dunya News

Britain has tightened screws on troubled banks vowing to overhaul Libor interest rate system.

The Financial Services Authority (FSA) watchdog made the proposals in an independent report that was commissioned by British finance minister George Osborne in the wake of this years notorious Barclays rate-rigging affair.British banks, already being forced to ringfence retail and investment operations, were facing even more pressure from authorities to reform and prevent a new global financial crisis.The reason we are here is that we have been misled, FSA managing director Martin Wheatley said on Friday as he published his review of Libor.The system is broken and needs a complete overhaul. The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust -- it has torn the very fabric that our financial system is built on.The Libor affair erupted in June when Barclays bank was fined 290 million ($470 million, 363 million euros) by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.The FSA on Friday said regulatory and sanctioning powers -- including the threat of imprisonment -- were now needed to punish those who attempt to manipulate Libor.Society wants the people who commit these sorts of crimes to pay the price, and if that includes jail for the most extreme fraud in the system, then that is what should happen, Wheatley told BBC radio.The London Interbank Offered Rate, or Libor, is a flagship instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money. Euribor is the eurozone equivalent.Libor is calculated daily, using estimates from banks of their own interbank rates, and affects the pricing of more than $300-trillion of contracts across the world, according to the FSA.However, the system was found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.His report also slammed industry body the British Bankers Association, arguing it had clearly failed in its key role in setting Libor, which must now be handed to a new group.Today we press the reset button, said Wheatley, while pledging to stamp out the shocking behaviour that led to systemic rate manipulation at the height of the global financial crisis in 2008.We need to get back to what this reference rate is supposed to; restore integrity to a globally important benchmark; (and) make sure we get to a position where individuals act with integrity.The FSA on Friday recommended that Libor submissions must be supported by relevant trade data and proper record keeping with greater rigour and transparency.More banks should be encouraged to submit rates to make the Libor benchmark more representative, while the publication of individual submissions should be held back for three months to help prevent manipulation, the regulator added.In response, the BBA said in a new statement that the Wheatley report was an essential step in reforming the Libor system, adding it would support the recommendation to hand over responsibility for setting Libor.The absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators, it said.Barclays is the only bank to have been fined over Libor, but it is understood that at least 15 lenders globally are being investigated for potential rate manipulation.