In response to Libor scandal, if the European Commission has its way Libor rate manipulation will become a criminal offense.
In the wake of the global settlement between Barclays Bank and regulators in the US and UK the blame game is on and fingers are pointing everywhere. While other settlements are highly likely, civil penalties will not be enough to address pre-existing problems with Libor rate surveying procedures. Moreover, civil penalties alone may not be enough to prevent this from happening again.
While there are a number of remedies worth considering the European Commission intends to make the manipulation of benchmark interest rates a criminal offense.
Several news sources have reported that Viviane Reding, the European Justice Commissioner, said British authorities had not done enough to address the problems with Libor. Moreover, American and British regulators have been under pressure as documents from the Barclays settlement show how central bankers were aware of rate manipulation antics as early as 2007.
Now, the EC proposes making manipulation of benchmark interest rates a criminal offense as EU officials are considering greater regulatory oversight for a number of benchmark rates, including Libor, which are currently overseen by an industry trade group. Meanwhile the British government is set to conduct an inquiry into how the rate is set, while the British Bankers’ Association also is carrying out its own internal review.
In the final analysis, the Libor scandal reveals that has been no guiding legal authority in the governance of the Libor and the Euribor rate setting process. And this is unsound given that $700 trillion in consumer debt, small business loans and financing for state and city governments is pegged to the benchmark rate.
In addition to making rate rigging a criminal offense, it might be wise to give the Bank of England as well as the European Central Bank the ability to set lending rates much like the Federal Reserve does in the US.
