Barclays backs Libor based on actual transactions

Dealing a death blow to the Wheatley Review and its recommendations, Barclays backs basing Libor on actual transactions rather than estimates.

As reported by Bloomberg,

Overseers of financial benchmarks should have limited or no discretion to set levels, Barclays said in a letter released yesterday by the International Organization of Securities Commissions. 

The letter, dated Feb. 11, was a response to IOSCO’s January request for comments on possible measures to overhaul the setting and governance of such benchmarks. 

“Reporting transactions or tradeable prices available to the market would serve to reduce conflicts, especially as trades are already subject to a clear and robust regulatory framework,” Francois Jourdain, a Barclays managing director, wrote on behalf of the U.K.’s second-biggest bank by value.

And how should market participants be able to access and verify unsecured interbank trades?

By requiring 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 information, market participants have access to the trade data and every bank can be part of the panel on which benchmark interest rates like Libor are based.

With this information, banks with deposits to lend can assess the risk and solvency of banks looking to borrow.  This unfreezes and keeps unfrozen the interbank lending market.