Regular readers know that your humble blogger recommended and the Wheatley Review rejected (it wouldn't even publish my submission) that benchmark interest rates be based off of actual transactions made available by requiring the banks to provide ultra transparency.
By disclosing their current global asset, liability and off-balance sheet exposure details, the banks end two major problems with the benchmark interest rates.
First, ultra transparency thaws the unsecured inter-bank lending market. Banks with deposits to lend can use the disclose data to assess the risk and solvency of banks looking to borrow.
Second, ultra transparency ends manipulation because market participants can use all of the transactions in the inter-bank market or a subset.
Of course, this eloquent solution was rejected by both the banks and their guardians, the regulators.
The group that manages the Euro Interbank Offered Rate, or Euribor, is considering setting up a parallel benchmark based on real transactions rather than estimates.
Euribor-EBF is exploring the move as part of its response to revelations that some lenders tried to rig interbank lending rates, tarnishing credibility of the indexes. The European Central Bank is providing technical assistance for a feasibility study, according to Euribor-EBF’s response to a review by global regulators.
Any new benchmark would be set up in addition to Euribor, according to the letter, sent to the International Organization of Securities Commissions. It wouldn’t affect any contracts linked to Euribor rates, the group said.
The move echoes comments made last month by Martin Wheatley, the head of the U.K. markets regulator. He said the London interbank offered rate should eventually be replaced with a transaction-based benchmark using a dual-track system. ...