The British Bankers Association will submit a report about the future of the Libor benchmark to its key advisory committee later this month, as part of a closely watched review into how this benchmark rate is calculated, Financial Times reports.
The report will be used by the BBA’s foreign exchange and money market advisory committee to decide whether the BBA needs to overhaul Libor, which is currently calculated each day for a series of currencies, as an average of a group of quotes submitted by banks.
The BBA report is unlikely to call for any radical change, since senior officials at the group believe that it would be unwise to start a dramatic overhaul at a time of market flux. BBA officials also continue to insist the basic process for calculating Libor is sound, and point out that this system provides market stability, since it has a 23-year track record.
But the discussions in the BBA committee are attracting considerable attention in the broader banking industry.
The recent credit turmoil has triggered a flurry of complaints that Libor has become inaccurate as a benchmark of sentiment, because it is drawn from voluntary quotes, rather than actual trades.
Consequently, the BBA advisory committee may come under pressure to consider some overhaul of this benchmark in the future.
One factor that could increase the pressure on BBA is that ICAP, the interdealer broker, is launching an alternative US rate benchmark, the New York Funding Rate, which surveys borrowing rates between US banks.