Central bankers eyeing whether Libor needs scrapping

[dipsydoodle]

Source: Reuters

(Reuters) - Central bankers and regulators will hold talks in September on whether the troubled global Libor interest rate can be reformed or whether it is so damaged that the benchmark of borrowing costs should be scrapped.

Bank of England Governor Mervyn King told fellow central bankers in a letter that it was "very clear that radical reforms of the Libor system are needed".

Fed Chairman Ben Bernanke and global financial regulator Mark Carney, who is also governor of the Bank of Canada, on Wednesday floated possible alternatives to the London interbank offered rate, which some bankers manipulated in the 2007-09 financial crisis.

"There are different alternatives if Libor cannot be fixed," Carney told a news conference in Ottawa.

Read more: http://uk.reuters.com/article/2012/07/19/uk-banking-libor-meeting-idUKBRE86H1AG20120719

[hobbit709]

1. Like the Hydra, it will grow a new head and resurface with a different name.

[99th_Monkey]

2. Title needs a little work

to be precise: how about

"Central Banks scrambling to invent 'even more creative & confusing alternatives' to Libor for set interest rates to reap even fatter profits from commoners"

That's a bit closer to the truth, as I understand it.

[unblock]

3. does anyone here happen to have a libor floater mortgage and care to read the fine print?

curious to know what happens to existing mortgages with rates that float on libor should libor no longer exist.

is some backup index specified (e.g., u.s. treasuries) or is this scenario not contemplated?

[dipsydoodle]

4. Yes - a problem

for / to ? which governments are currently giving considerable thought no doubt.

US Treasuries , for example , would assume that all funds lent had US origin so I doubt that would work.

Probably use ASHOS - another suspect heap of shit.

Overall , to date , its likely that mortagees et al will have gained dues to the banks having reduced Libor to create the illusion of stronger balance sheets. Investors on the other hand may have lost out.

[unblock]

5. i guess the idea is that they would use some other index and call it libor

so as not to cause problems for contracts (mortgages, e.g.) that did not contemplate LIBOR actually going away.

So libor wouild techincally continue to exist even if it's always exactly equal to the corresponding u.s. treasury rate.

strange times these days, and not in a good way!

[dipsydoodle]

6. No - libor will continue to exist.

Regardless if what has happened it is the London inter bank rate. Its the manner in which its used by other currencies which may change.

If libor + x = y then it should be easy to commute y to an alternative.

[muriel_volestrangler]

7. Could they calculate it after real inter-bank loans, based on documentary evidence

so that, rather than bankers saying "I think we would be charged x% if we needed to borrow", it's based on "yesterday, we were charged y% when we borrowed"?

[dipsydoodle]

8. That would assume real borrowing to have occured

and it may not have done.

I've wondered if instead of using 16 banks , chopping off the top and bottom four and then averaging the middle eight . they could go over to eight of sixteen picked from a hat each morning at 11 0'clock......legs eleven etc.

I couldn't understand some of this at first because I hadn't appreciated the spread of use of Libor in 1984 - I thought it was still as it was early '70s. That's the reason I couldn't understand US involvement. I do think that our FSA and the US equivalent purposely sat on this to help avoid a banking calamity and that the Barclays fine was hardly a surprise to the bank itself. I'm also amazed this hadn't leaked meanwhile.