BBA announces steps to strengthen LIBOR

The global borrowing benchmark BBA LIBOR is to be strengthened by reinforcing the scrutiny of its contributor banks and expanding the membership of its governing body and its panels.

The British Bankers' Association announced a package of changes to the governance of its London Interbank Offered Rate (BBA LIBOR) at its annual conference today and issued a paper calling for views on further changes.

The benchmark - by far the most widely referenced interest rate index in the world - is used to set rates for financial products worth around $350 trillion. Recently it has come under the spotlight as an accurate barometer of the credit crunch, as it follows the rates at which banks perceive borrowing risk in the markets. But as the credit crunch led to stress in the markets, it also stressed this benchmark.

The changes announced today are:

tighter scrutiny of the rates contributed by banks into the setting mechanism, so that any discrepancies in the rates must be justified by individual contributing banks;

wider membership of the Foreign Exchange and Money Markets Committee, the independent body which oversees the process; and

increasing the numbers of contributors to some of the rate-setting panels.

The BBA will also take soundings on whether the historically transparent rate-setting mechanism is stigmatising contributors and whether a second rate-fixing process for US dollar LIBOR might be set after the US market opening.

Launching the paper at today's conference, BBA Chief Executive Angela Knight said: "BBA LIBOR has stood the test of time: it has been published on every business day since 1985 and is among the most transparent indices in the world. These changes will further strengthen BBA LIBOR and the confidence of its many users."