136991156

The look ahead: Libor scandal prompts examination of regulatory loophole


The admission in June that bankers manipulated the London interbank offered rate, or Libor, revealed a gaping regulatory loophole that European lawmakers are targeting to close.

On Monday, the European Parliament’s Economic and Monetary Affairs Committee will hold a public hearing to tackle the culture of market manipulation that was at the heart of the Libor scandal and to consider overhauling the governance of how market benchmarks are set.

The British Bankers Association sets the Libor based on input from large banks, which submit interest rates they would pay on loans from other banks. The benchmark interest rate is applied to financial contracts worldwide, including mortgages, derivative trades and student loans.

The problem is that contributing banks are suspected of having submitted false rates for more than a decade. This has eroded the trust in the benchmark rate and triggered calls for stricter regulatory oversight.

Since the allegations of Libor manipulation came to light, prosecutors have begun investigating banks’ potential involvement in the scandal. In the US, states are now considering following the example of cities that already filed lawsuits to seek damages from large banks, The New York Times reports. 

IASB break ends

After a break of more than a month and a half, the International Accounting Standards Board (IASB) will reconvene for meetings Monday through Friday.

Joint videoconference meetings with the US Financial Accounting Standards Board (FASB) will include discussions of projects on insurance contracts and revenue recognition. The IASB agenda also includes work on its conceptual framework, leases and rate-regulated activities.

FASB also has a busy week scheduled, with meetings set for Tuesday and Thursday in addition to its sessions Monday and Thursday with the IASB. In the FASB-only meetings, topics the board is scheduled to discuss include leases and ratification of Emerging Issues Task Force issues.

Webcasts of the meetings can be viewed on the respective websites of the IASB and FASB.

How is Europe’s financial health?

The euro zone has made some progress in stabilising the sovereign debt crisis. Data that the European Central Bank (ECB) will release on September 27th is expected to show how much further the euro zone has to go to get over the crisis.

One data point is the August M3 money supply, the broadest measure of money supply growth and a pillar of the ECB’s monetary policy because of Europe’s experiences with hyperinflation. In June, money supply in the euro zone grew faster, expanding at an annual rate of 3.8%. In June, money supply grew 3.2%, according to the ECB.

The second data point is the economic sentiment indicator, which is based on business and consumer surveys. In August, the index decreased by 2 points in the EU and by 1.8 points in the euro area because of a loss of confidence among consumers, the retail sector and construction managers, according to the ECB. The index dropped to 87 in the EU and to 86.1 in the euro zone, below the long-term average of 100.

Shortly after the US financial crisis peaked, the index dropped to 68 in the EU and 70.6 in the euro zone, according to the ECB. Since then sentiment improved initially but then declined again as the euro zone crisis deepened.

Jobless rate a clue to Japan’s economic health

On September 27th, the Statistics Bureau of Japan will release the nation’s August unemployment figures.

After reaching a historic high of 5.5% in 2009, Japan’s unemployment rate was on a steady decrease until the rate started to inch up again about a year ago. By July, the seasonally adjusted unemployment rate had come down to 4.3%, about the same as a year earlier, according to the Statistics Bureau.

Don't miss out on additional news and features from CGMA Magazine.
Sign up for our free e-newsletter.