Thursday July 26, 2012
Singapore tells banks to review interbank rate setting
SINGAPORE: Singapore's central bank has ordered banks in the city-state to review the way benchmark interbank borrowing rates are set, as regulators worldwide scrutinise the troubled Libor system.
“We've directed the banks to take a look at their processes and have an independent review done,” Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore (MAS), told a news conference yesterday.
Regulators in Singapore and other major financial centres are looking into reforming interbank borrowing rates following suspected rigging of the London interbank offered rate (Libor).
More than a dozen banks are under investigation in the United States, the United Kingdom and Japan for allegations they tried to manipulate interbank rates. British bank Barclays was fined US$453mil last month after it admitted its traders tried to rig its rate submissions.
Libor and other similar benchmarks are used to price trillions of dollars worth of loans and derivative contracts.
The MAS's main concerns focus on the Singapore interbank offered rate (Sibor) and the Singapore swap offer rate (SOR), the two main benchmarks used to determine mortgage loans in the city-state.
Sibor is set daily, based on a panel of banks that submit the rate at which they could borrow funds if they were to ask for and accept a rate from another bank in the region in a reasonably sized market.
For the SOR, the panel of banks submit the cost of borrowing US dollars for a certain period of time and swapping them into Singapore dollars for the same period of time. It is commonly used as many banks in Singapore rely on US dollars for their wholesale funding.
Teo said all rates set by a similar process would be reviewed, though it was too early to say what changes the review would lead to. - Reuters