The U.S. Treasury Department and Federal Reserve need to stop using the benchmark interest rate known as Libor in financial rescue programs, as it might not be reliable and could put taxpayer dollars at risk, a federal watchdog said on Thursday.
The special inspector-general for the Troubled Asset Relief Program, the bailout vehicle launched during the financial crisis, recommended that the Treasury and the Fed change some initiatives to ensure participating U.S. firms use alternatives to the London inter-bank offered rate in pricing billions of dollars in loans.
Libor is intended to measure the rate at which banks lend to one another and is used as a benchmark to set borrowing costs on financial instruments, including derivatives and mortgages.
It has faced heightened scrutiny since Barclays agreed to pay more than $450 million in fines to U.S. and British authorities to settle charges its employees rigged the rate to increase profits.
The Treasury and the Fed should "cease using Libor in TARP programs," the special inspector general said in the report. "American taxpayers who funded TARP may have been at risk and continue to be at risk from the manipulation of Libor."
Libor was set as the base interest rate in many government bailouts from 2007-2009. More than three years after the launch of TARP, the federal government still has bailout programs in operation, some of which will last as long as 2015 and 2017.
Read more: http://www.reuters.com/article/2012/10/25/us-usa-bailout-banks-idUSBRE89O07120121025
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