“With Libor being such an intrinsic part of the financial system, restoring trust in it is an important step towards the broader task of rebuilding confidence in banking,” Matthew Fell, director for competitive markets at the Confederation of British Industry, said in an e-mail. “Bringing Libor under an independent regulator will take away the notion that this was a system run by banks for the benefit of banks.”
Wheatley stopped short of advocating scrapping Libor, saying that would be too disruptive to borrowers whose existing contracts reference the rate.
“Repealing Libor was just not an option,” said Simon Maughan, a banking analyst at Olivetree Securities Ltd. in London. “He’s done the right thing here,” he said. “Improve it, make it based on real transaction costs, get rid of some of the currencies, that seems like a sensible approach.”
The FSA will encourage more banks to submit quotes as part of the revamp, Wheatley said, and could force uncooperative banks to submit quotes with its new powers.
The number of Libor reference rates should be cut to 20 from 150 within a year by phasing out currencies and maturities in which trading is thin, Wheatley said. Publication of Libor for Australian, Canadian and New Zealand dollars, as well as the Danish Kroner and Swedish Kronor should be ended, he said.
Four-month, five-month, seven-month, eight-month, 10-month and 11-month rates should be axed, while eliminating one week, two-week, two-month and nine-month tenors should also be considered, according to the proposals.