Libor’s credibility in doubt

The British Bankers’ Association is reassessing how it calculates the London
Interbank Offered Rate (Libor) as concerns over the credibility of its
measurement intensifies.

Although there are widespread fear Libor has blown out significantly above
base rates, economists are worried banks may understate the rates they are
prepared to use when lending to each other, downplaying liquidity problems,
according to The Daily Telegraph.

Pressure for a Libor overhaul has been mounting following a report last week
by Citigroup interest rate strategist Scott Peng.

‘We believe the current liquidity crisis has damaged the inter-bank market,
resulting in Libor sets that at times deviate significantly from real inter-bank
lending rates,’ he said.

Further reading:

story in The Daily Telegraph

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