Interest rates used to price financial contracts worth trillions of dollars globally should in future be based on actual market transactions and not banks’ judgments, Bank of England Governor Mark Carney said in minutes of a meeting released on Monday.
The pricing of financial contracts based on the London Interbank Offered Rate (Libor) led the BoE and other central banks to look at alternatives based on actual market transactions to make them harder to manipulate.
Libor is based on submissions from banks of interest rates they believe they would be charged by other banks for borrowing money.
Banks were fined billions of dollars for trying to rig Libor and its continental European counterpart, Euribor.
Libor had been compiled by a UK banking industry body, which was stripped of this role. The benchmark is now run by an independent firm regulated by the Financial Conduct Authority, but Carney’s comments signal that such reforms won’t be enough.
He told industry representatives attending the BoE’s Roundtable on Sterling Risk-Free Reference Rates on July 6 that controls on Libor rate submissions from banks were now much tighter.
But, according to the minutes, Carney said a situation where “a judgment-based benchmark underpinned an estimated $350 trillion-worth of contracts was not desirable.”
Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at email@example.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.