Banks will also have to follow a code of conduct governing how they make daily submissions. Rate-setters will have to base inputs on a hierarchy of data points, starting with actual transactions in the unsecured inter-bank deposit market, Wheatley said. Where none exist, banks should then consider any borrowings in other instruments including commercial paper, repurchase agreements and overnight-index swaps.
Wheatley also proposed banks wait three months before disclosing publicly their own Libor submissions. To rectify the “reduction in immediate transparency” he recommended lenders publish a regular bulletin that includes trading volumes.
The tender process to take responsibility for setting Libor will start next week and be run by an independent committee led by Sarah Hogg, the chairwoman of the Financial Reporting Council. Wheatley said the bidding should take about three months.
The BBA’s role as guardian of Libor has been under pressure since the Bank for International Settlements first raised concern in 2008 that the benchmark was being manipulated.
“Many respondents thought that the current position of the BBA is untenable due to its loss of credibility from past involvement in Libor and its vested interest in defending the banks,” the report said. “The BBA acts as the lobby organisation for the same submitting banks that they nominally oversee, creating a conflict of interest that precludes strong and credible governance.”
Other benchmarks, such as for the prices of agricultural products, oil and precious metals, and in the equity, bond and money markets, should be looked at as well, Wheatley said.
The European Union, which is conducting its own review of interest-rate benchmarks, including Euribor, said that any solution must apply across a wide range of markets.
“Concerns about benchmarks are not limited to interest rate benchmarks, but extend to all kinds of benchmarks, including commodity and benchmarks for other markets,” the EU said in a statement.
Dan Doctoroff, CEO of Bloomberg LP, has proposed an alternative to Libor dubbed the Bloomberg Interbank Offered Rate, or Blibor. It would use data from a variety of financial transactions to better reflect participating banks’ real cost of credit. Bloomberg LP is the parent of Bloomberg News.