Libor likely to be replaced by a ‘dual-track’ system: FT

The British regulator says the new scheme would protect those with products already tied into the existing system. Photo: AFP

AFP : live Mint :Mon, May 13 2013. 08 31 AM IST

A dual-track system would combine survey-based rates and objective data, says Financial Times

London: A dual-track system combining survey-based rates and objective data is set to replace key global interest rate Libor, theFinancial Times reported on Monday.

Martin Wheatley, the British regulator leading attempts to reform the scandal-hit interest rate system, told the FT that the new scheme would protect those with products already tied into the existing system.

“You can’t just say: ‘Forget about yesterday’s problems, we’ll just move to the future’,” he said.

“If you change the definition, it’s almost certain that one side of every one of those trades would lose out and then would say: ‘We’re no longer bound by this’,” he added.

Barclays Plc, Royal Bank of Scotland Plc and UBS AG have paid over $2 billion to settle allegations they manipulated Libor to their advantage or hide their financial strains during the 2008 credit crunch.

Libor, or London interbank offered rate, is a flagship instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money.

Libor is calculated daily, using estimates from banks of their own interbank rates, and affects the pricing of more than $300-trillion of contracts across the world, according to regulators.