Regulators set out next steps for reform of interbank lending rates

The British Bankers Association (BBA) said that it planned to consult on the "continuing evolution" of the London Interbank Offered Rate (LIBOR), which could include the introduction of a code of conduct for banks which contribute to the rate.

The consultation will be part of the authorities' continuous review of the rate, the BBA said. It was last subject to scrutiny by an independent oversight committee in 2008/09. Regulators in the US, Europe and Japan are currently investigating whether banks set artificial rates during the 2008 financial crisis.

“The BBA has always kept LIBOR under review and we periodically consult the market and other interested parties on refinements they would like to see,” the body said. “We will keep all interested parties informed as we go forward. Any recommendations arising from the exercise will be shared in full consultation with regulators and users.

LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used to calculate the applicable interest rate for financial instruments including currencies, variable rate mortgages and syndicated loans. Contributing banks submit their rates directly to business data provider Thomson Reuters, which carries out the calculation and publishes LIBOR rates in 10 currencies at midday every London business day.

As well as considering the introduction of a “rigorous code of requirements” for contributors to the LIBOR rate, the review process will also look at what financial instruments are included for the purposes of defining the rate as well as ways in which the statistical underpinning of contributions to the rate could be strengthened.

The consultation will be led by a banking industry steering group including Barclays, Credit Suisse, HSBC, RBS and Lloyds.

BBA chief executive Angela Knight told Reuters that any change as a result of the review process would be gradual. “Big bang change” could lead to market instability with so many contracts dependent on the rate, she said.

“It will take place on a sensible and reasonable timetable,” she added. “It’s all about evolution, confidence and no fireworks.”