Cyprus Shows Libor Still Broken

Benchmark rate ignored the crisis in Cyprus, with just four out of 18 banks showing increase in dollar borrowing costs.

Libor ignored the crisis in Cyprus that’s roiling financial markets, showing the global benchmark for $300 trillion of securities remains divorced from reality six months after regulators laid out a plan to fix it.

Just four of the 18 banks contributing to the London interbank offered rate in U.S. dollars increased submissions last week to show a rise in their estimated borrowing cost, as concern grew about bank runs and bailouts in Europe. UBS AG and BNP Paribas SA were among those reporting no change.

New Regulator

Britain is adopting a plan that aims to improve the way the London interbank offered rate is set. The Libor scandal erupted after London-based Barclays Plc was found to have made artificially low submissions during the financial crisis to avoid the perception that it was under stress.

‘Fragile System’

Australia this week scrapped the panel that sets its benchmark interbank rate, becoming the first major developed economy to replace its rate-setting regime following the rigging scandal. The nation’s bank-bill swap rate will be compiled directly using prices from brokers and electronic markets instead of asking a panel of banks, according to the Australian Financial Markets Association.

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