Two interest rate benchmarks that banks were fined for rigging should be scrapped and replaced by indicators based on market transactions, a top US regulator said on Monday. The changes should also include benchmarks linked to gold, oil and other commodities, said Gary Gensler, chairman of the Commodity Futures Trading Commission said.
Regulators from across the world are fleshing out changes to how two key interest rate benchmarks in particular, the London Interbank Offered Rate (Libor) and its continental European counterpart Euribor, are compiled. They are used to help price products from home loans to credit cards worth over $300 trillion but three banks have been fined for rigging the rates.
"I believe Libor and Euribor are unsustainable in the long run. They threaten financial stability," Gensler said. Gensler co-chairs the group of regulators setting out principles on how benchmarks can be run and compiled to make them harder to manipulate.
Alternatives based on market transactions should be used and a fixed date set for scrapping the existing Libor and Euribor benchmarks that are currently based on quotes from banks, Gensler told a CityWeek conference. These alternatives could run alongside the existing benchmarks until the unspecified cut off date is reached. "The principles that we laid out are equally relevant to energy, metals, agriculture and financials - for any benchmark to be reliable and robust (it should) be anchored in observable transactions," Gensler later told reporters.