Banks May be Forced to Help Regulate Libor

Following the revelations of the Libor scandal this year, the Financial Services Authority (FSA) began putting in place the processes by which Libor could be regulated, making banks participate in a panel that would set the interest rates openly, rather than leaving it done by a small number of banks behind the scenes.

The measures were brought in after one of the FSA’s top executives, Martin Wheatley, suggested that the debate be opened up to bring more institutions into the setting of Libor. It’s a proposal that went down well with people at the FSA, but, so far, no banks have stepped forward to become the extra members of the panel.

However, this isn’t deterring the FSA, who are considering forcing banks into joining the panel if this level of reluctance continues to be shown.

Since Barclays were fined a record £290million for rigging Libor rates, used to set the interest rates on inter-bank loans in London, in order to generate themselves more profit, the FSA has been looking at regulating indices that could be manipulated in this way, starting with Libor and possibly moving into the commodities market.

However, whether the system will work is yet to be seen. Many people are sceptical that the banks can be trusted to keep everything in order, whilst there are also issues with the reputation of the FSA itself when it comes to regulating the banks. Following the 2008 financial crisis, the FSA was seen as powerless in some quarters, having failed to stop the banks acting in the manner that caused the financial collapse, and not even being able to predict it.

The measures are undoubtedly going to be brought in, it’s just a case of seeing when they are brought in and whether they actually work; with the Bank of England and the FSA going through so many changes over the next few months, it’s going to be a difficult time to oversee the creation of this regulation as well.

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