Friday, June 29, 2012

Mervyn King calls for basing Libor off of actual trades

As reported by the Wall Street Journal,
Mr. King said Friday that the process of using quotes to calculate Libor should be replaced with a system in which actual transaction prices are used instead.
Regular readers know that your humble blogger proposed this solution some time ago.

The question now becomes how to do this in a transparent way.  The easiest way is to require the banks to disclose all of their wholesale trades as I have recommended under ultra transparency and then let the market select which trades to include in calculating Libor.  

This not only restores confidence that Libor actually reflects what is happening, but also prevents future manipulation.

Just like the structured finance data warehouse, nobody will trust the data from a "Libor" data warehouse if the banks control the data warehouse.

Since my firm has the expertise to run a trusted "Libor" data warehouse, it is a natural for coordinating and overseeing the day to day operation of a conflict of interest free "Libor" data warehouse.

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