Libor Is Set for Overhaul as Its Credibility Is Challenged

St. Louis Post-Dispatch (05/29/08); Livesey, Ben; Finch, Gavin
The unregulated London-based trade group that sets the London interbank offered rate (Libor) will release an in-depth report on May 30 that examines allegations that financial institutions lied about their borrowing costs to keep from appearing weak in the midst of a credit crisis. The British Bankers' Association told member banks on April 16 that they would be banned if it was determined they were misquoting rates, prompting an 18-basis-point jump to 2.91 percent in the cost of borrowing in dollars for three months and a 14-basis-point jump in the one-month rate within two days of the announcement. The report could have far-reaching effects, as Libor is used to set adjustable mortgage rates and serves as the benchmark for interest-rate swap contracts.