US rejects calls to scrap Libor

The US Treasury and the Federal Reserve have rejected calls to stop using the London interbank offered rate – a lending gauge at the centre of a manipulation scandal – in their bailout programmes.

The rate, known as Libor, is based on self-reported borrowing costs for unsecured loans between banks and is used to price hundreds of trillions of dollars’ worth of financial instruments including home mortgages and derivatives. Prosecutors and regulators in North America, Europe and Asia are investigating more than a dozen financial institutions that may have been involved in alleged attempts to manipulate Libor from 2005 to 2009, officials have said.
Last month, Gary Gensler, Commodity Futures Trading Commission chairman, questioned the accuracy of Libor and told the European parliament that data collected by his agency suggested that the rate continued to be flawed and needed either radical reform or abolition.
But earlier this month, following a request by the special inspector general for Tarp (Sigtarp), the Treasury and the Fed declined to amend the contracts of two bailout initiatives that use Libor to set interest rates.
The Fed said 98 per cent of its loans that relied on Libor have been repaid. The Treasury said it lacks evidence that Libor is currently misstated, potentially putting it at odds with Mr Gensler and the CFTC. UK authorities have said they think banks are doing their best to report honest rates.

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