U.S. and international regulators are meeting in D.C. Monday with representatives from the world’s biggest banks to discuss an overhaul to the benchmark interest rate used in transactions that touch every part of the financial system.
The Federal Reserve Board of Governors said Monday morning that it would host the meeting among key players in financial markets to discuss alternatives to the London Interbank Offered Rate, or LIBOR, an important reference rate of the interest charged by banks to each other on very short-term loans.
LIBOR became a topic of intense interest in 2012 amid allegations that banks had manipulated the rate for their profit. U.S. regulatory agencies started several investigations, which have resulted in one settlement with the British bank Barclays for $20 million in October.
In a statement announcing Monday’s meeting, Fed Governor Jerome Powell called reference rates like LIBOR “one of the foundations of the financial system” and said that “it is in the interest of everyone, from the residential mortgage holder to the financial institutions that heavily use these rates, that they have integrity and be well constructed and resistant to manipulation.”
Joining Fed, Treasury and Commodity Futures Trading Commission officials at the meeting will be representatives from U.K., Japanese, Swiss and euro area financial regulators. They will speak with bankers from the world’s biggest financial institutions, including Barclays, JPMorgan Chase, Goldman Sachs, the Japanese bank Nomura and others.
The meeting follows a July report by the Financial Stability Board, a group of regulators from the G-20 nations, that found that “cases of attempted market manipulation and false reporting of global reference rates … have undermined confidence in the reliability and robustness” of measures such as LIBOR.
The report recommended finding alternatives to LIBOR, including measures that tie the index rate to underlying transactions. In the past, LIBOR has been calculated based on the rates reported by the banks themselves.
Along with other main reference rates, LIBOR is used in setting rates used in making commercial loans, mortgage backed securities, checking accounts and much more.
