That can only be accomplished by basing Libor on actual trades and requiring disclosure of all the trades at each bank.
As David Zervos at Jeffries & Co said and Mr. Geithner and the NY Fed were firmly aware,
It should come as no surprise to anyone that major commercial banks manipulate Libor submissions for their own benefit.
The OTC derivatives markets was designed by the big banks, for the big banks, to ensure that as they set up their own private securities exchanges - away from regulatory scrutiny - they could control the interest rate settings.
Money center commercial banks did not want the "truth" of market prices to determine their loan rates. Rather, they wanted an oligopolistically controlled subjective survey rate to be the basis for their lending businesses.
Please re-read the highlighted text as it nicely summarizes how Wall Street intentionally erects a veil of opacity so that it can manipulate the financial system for its benefit.
Given that Mr. Geithner and the NY Fed had reason to think that banks might not have been entirely honest when reporting their Libor submissions, there are a series of questions:
Why didn't he/the NY Fed recommend a transparency based solution to prevent manipulation of the Libor interest rate?
Why did he/the NY Fed recommend solutions that would not prevent an oligopoly from manipulating the Libor interest rate?Mr. Geithner's and the NY Fed's Market and Research and Statistics Groups first suggestion (and people always lead with their best idea) for enhancing the credibility of Libor.
To improve the integrity and transparency of the rate-setting process, we recommend the BBA work with Libor panel banks to establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting. The BBA could require that a reporting bank's internal and external auditors confirm adherence to these best practices and attest to the accuracy of banks' Libor rates.
To further enhance perceptions of the BBA as an objective intermediary in the rate-setting process, we recommend greater transparency with respect to the financial relationship between the BBA and the panel banks, and around the BBA's financial interest in Libor.(for those who don't know, BBA is the British Bankers' Association and is a lobbying firm for the banks).
Compare and contrast to how a transparency based solution would be written.
To improve the integrity and transparency of the rate-setting process, we recommend that each Libor reporting bank disclose every funding related trade to a Libor data warehouse run by a conflict of interest free third party. This data warehouse will determine the Libor interest rate. Each reporting bank's internal and external auditors will attest to the accuracy of the reported trades.