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Tuesday, May 13, 2008

Libor Poised For Shake-Up, Credibility GONE

Libor is back in the news. Much like everything else, the banks have been faking this too.

Libor Poised for Shake-Up as Credibility Is Doubted (Update2): “The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners faces its biggest shakeup in a decade as lawmakers question if banks are understating borrowing costs.

For the first time since 1998, the British Bankers' Association is considering changing the way it sets the London interbank offered rate, according to Chief Executive Officer Angela Knight, who appeared before a parliamentary committee in London today. “We've put Libor under review,” Knight said in an interview yesterday. While she declined to discuss specifics, the BBA will announce changes May 30, she said.”

Why is Libor under review? Because the banks are liars…

“While the BBA set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.”

“The Libor numbers that banks reported to the BBA were a lie. They had been all the way along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers.” - Tim Bond, head of global asset allocation at Barclays Capital in London.

“Libor rates jumped after the BBA said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, its biggest gain since November.

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month. Banks are understating borrowing costs on concern they will be perceived as “weakened” by the credit turmoil that forced banks to record $323 billion of losses and credit-markets writedowns, said Peter Hahn, a fellow at the London-based Cass Business School.”

Depending on how serious this review is, expect Libor to creep up if it becomes more and more likely that the TRUE Libor rate will come out.

Related Posts:
RISE Dark Lord Libor! RISE!
Ambac Gets Crushed, Another Bank Wobbles
Fragile Banks: More Bailouts, More Capital
The Race To The Bottom Accelerates
The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
Dammit, Why Won’t You Learn?
The TED Spread, LIBOR and EURIBOR = Scary Bad
Mortgage Insurers (Quietly) Downgraded: CDS Spreads Scream Trouble

BTW, if the banks would lie about Libor, what are the odds that they’re lying about the value of their Level 2 and Level 3 assets? >GRIN<

Think about it.

Related Posts:
Bulltrap: ABCP and Level 3 Bombs
Something To Think About: Goldman Sachs, Level 3
Level 3 Rules

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