Libor

The British Bankers' Association (BAA), the organisation that sets the Libor interbank rate has said it will support any plans to strip it of its responsibility for Libor, if required.

On Tuesday, the BBA said in a statement that it seeks to work with the Wheatley review team as they complete their consultation on the future of Libor. It added that:

‘If Mr Wheatley's recommendations include a change of responsibility for Libor, the BBA will support that.’

Martin Wheatley, appointed by the Treasury to review the way the current regime operates, is expected to publish a report into how to reform Libor on Friday. He has already branded the existing system ‘no longer fit for purpose’ and is expected to recommend radical changes to the way the rate is calculated.

The Libor system is currently overseen by the BBA but not formally regulated by the FSA or Bank of England. In an attempt to rebuild confidence in financial markets, the BBA may be replaced by a formal regulator that will oversee the rate that is used to set prices on a range of financial instruments, such as mortgages and interest rate contracts.

Heavy criticism has come in the way of the BBA and the way it has run Libor, although it argued that it was not directly responsible for compiling the rate. While the BBA has published the rate since 1986, it has never been directly regulated, despite the special role it has in being used as a key and global benchmark against which banks decide to lend to companies and individuals.

This latest development follows a string of dramatic turns in the Libor scandal including, the resignation of former CEO of Barclays, Bob Diamond, and Barclays having to pay £290m in fines over the rigging of Libor.

The saga is set to continue as further investigations into how other major banks could have conspired to influence the level at which Libor was set take place.

Lloyds Banking Group and Royal Bank of Scotland are among the banks currently being investigated.