Banks involved in setting the £350 trillion (£220 trillion) Libor rate will have to follow a strict set of instructions to avoid a repeat of the recent price fixing scandal, its new administrator said today.
Lenders and brokers including Barclays and Royal Bank of Scotland have paid out billions in fines after traders were found to have rigged the benchmark rate, which is used to set financial instruments ranging from credit cards to home loans.
US derivatives firm Intercontinenal Exchange, which now oversees Libor instead of the British Bankers’ Association, said it plans to standardise the way in which it is set. It has launched a consultation ahead of planned reforms next year.
“It is in the interests of users of Libor and benchmark submitters alike that a more unified transaction-based methodology should be adopted,” ICE Benchmark Administration said.
“We therefore propose a more prescriptive calculation methodology with pre-defined parameters that our oversight committee will keep under review.”
Libor is calculated by a daily poll that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies.
However, the methods lenders use to calculate their submissions currently differ, according to ICE.
