UK regulator looks at compelling banks to join Libor rate setting process

The UK's Financial Services Authority continues to pursue complex rules/regulations and regulatory oversight as a substitute for transparency when it comes to fixing the Libor interest rate problem.

The Guardian reports on the latest example which is requiring banks to join the Libor rate setting process so the rate can be based on the submissions by 20 banks.

Regular readers know that the simple solution for fixing Libor is to require the banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

With this disclosure, the interbank lending market unfreezes and stays unfrozen as banks with deposits to lend can assess the risk of banks looking to borrow.

With this disclosure, market participants can base Libor off of actual transactions from as many banks as they would like.

With this disclosure, there is no need to "compel" banks to join the Libor rate setting process as they are already providing the data that market participants can use.

Financial Services Authority consulting on how the number of banks providing rates to Libor can be increased to 20 institutions. 

Major banks could be forced to participate in the panels that set benchmark interest rates if not enough of them step forward to provide prices to Libor, according to proposals being floated by the Financial Services Authority. 

The City regulator, as it published a consultation document on implementing the changes to Libor recommended by one of its top executives Martin Wheatley, opened up for debate how the number of banks providing rates to Libor can be increased to 20 institutions. 

At the moment up to 18 banks provide submissions to Libor, which is to be regulated for the first time since the scandal over Libor fixing led to a record £290m fine on Barclays in June.