BritishBankers

Implications for the British Pound Should Stocks Fall

BBA again. And now I've made an error. I should have written:

"The mortgage approval figures we announced yesterday did indeed show a fall in mortgage approvals: from 38,186 in July to 38,095 in August."

My apologies.

Implications for the British Pound Should Stocks Fall

British Bankers' Association here. Interesting argument but may we please correct you on two points? The mortgage approval figures we announced yesterday did indeed show a fall in mortgage approvals: from 38,186 in June to 38,095 in July. Fewer than 100 - hardly seismic. And the figures did not miss expectations, because we had none: we provide only current statistics, not forecasts.

Assessing the Fed Under Bernanke

British Bankers' Association here. Yes we are responsible for BBA LIBOR and yes from the US perspective we are a foreign entity (our name is a dead giveaway). But what possible bearing does that have on whether or not US companies should use LIBOR? Are you going to stop using HTML now because a foreign entity invented it? (The very same foreign entity, by the way, that created LIBOR. Telephones, too, and arguably TV. Your options for communication are shrinking by the minute)

Every day 16 banks tell us what they would expect to pay to borrow US dollars in the London money market. We crop off the outliers (the top and bottom four) and then take the average of the middle eight to produce a benchmark. This is a completely transparent process - everybody sees the rates that everybody else contributes - which is why LIBOR is so widely used and trusted worldwide.

The contributor banks for US dollar LIBOR currently include Bank of America, Citibank and JP Morgan Chase - hardly foreign entities. In reality these are actually global entities that operate in all major markets, as are all the other banks that contribute to LIBOR.

Neither the Federal Reserve nor any other central bank or regulator requires banks to use LIBOR: this is a competitive market. But time and again LIBOR has seen off competition by being more a more transparent, durable and accurate barometer of interbank lending rates across the world than any other. But you want the Fed to prohibit banks from choosing the world's best benchmark? Really?

Mythical Creatures: Unicorns and Libor

Well now we know what your scrapbook looks like. But it is incomplete.

By merely quoting Bloomberg you missed a few rather important bits from that IMF report, such as:

“Although the integrity of the U.S. dollar LIBOR fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar LIBOR remains an accurate measure of a typical creditworthy bank’s marginal cost of unsecured U.S. dollar term funding"

and, later:

"BBA proposal to introduce more aggressive scrutiny of individual bank contributions is still welcome, as it should improve the accuracy of the LIBOR calculation by, potentially, expanding the panel of contributing banks, and increasing incentives to submit accurate funding rates while maintaining transparency."

You can read the full document for yourself at: www.imf.org/external/p...

And that Salzman quote is more than a bit suspect too: that's certainly not how BBA LIBOR is calculated!

So we at the BBA repeat: our commitment is to providing the most accurate and transparent benchmark we can. Much of the criticism you repeat here is not criticism of LIBOR, but of the extreme volatility of the interbank market. Criticising a benchmark because of its market's erratic behaviour sounds to us a bit like shooting the messenger of bad news.

Our invitation to you to discuss any of these matters remains open - we remain anxious to explain how, and why, BBA LIBOR continues to be relied on by so many lenders as a true benchmark of money market activity.