Libor Revamp Likely to Raise Borrowing Costs

Expanding the banks that submit their rates will add smaller institutions that pay more to borrow.

Borrowing costs for consumers and companies will rise as efforts to revive confidence in Libor increase the number of banks involved in setting the rates, which determine more than $300 trillion of securities.

A higher number of lenders will include smaller, weaker institutions that pay more to borrow, according to James Edsberg at Gulland Padfield, a London-based financial services consultancy. Euribor, the benchmark for interbank deposits in euros, is set by 43 banks and has been fixed higher than euro Libor, determined by 15 lenders, by an average 5.7 basis points since March 2009, according to data compiled by Bloomberg.

Greek Submission

The panel setting Euribor, under the aegis of the European Banking Federation, includes National Bank of Greece SA in Athens, which is awaiting recapitalization, and Bank of Ireland Plc, that country’s biggest lender. There are also four Italian lenders, including Intesa Sanpaolo SpA and UniCredit SpA, the two largest, and four Spanish banks including Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA, also the two biggest.

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