The council of the British Bankers’ Association (BBA) has voted to give up its responsibility for setting the Libor interbank borrowing rate in the wake of the rate-fixing scandal that engulfed the industry three months ago, Sky News reported.
At a BBA council meeting on September 13, a motion was passed for the organization to relinquish its role in the Libor administration process, Sky News reported.
The decision will effectively force regulators to devise a new structure for overseeing the benchmark rate, which has been sponsored by the BBA since the 1980s.
The BBA had only hinted at such a move when the rate-rigging scandal erupted at the end of June, saying at the time: “The current Libor review, with which our authorities are fully engaged, has been under way since March this year and is considering all aspects including the setting process.
“As part of this review, we will now be asking the authorities to consider in what manner the Libor-setting mechanism should be regulated in the future.”
Libor is determined using rates submitted by a group of 18 leading banks, which estimate how much it costs them to borrow from one another in 10 different currencies and 15 borrowing periods ranging from overnight to one year.
Libor is the primary benchmark for global borrowing and influences the cost of securities from mortgages to derivatives.
The Libor scandal erupted in early July in the UK after news that Barclays and other banks had understated the rate during the 2008 financial crisis to make themselves look healthier to the public. Barclays Chairman Marcus Agius had to quit in early July in reaction to the rate scandal.