After the latest scandals, the EU Commission wants to control the so-called reference interest rates more strictly. So far, the banks have set the Libor and Euribor themselves. In the future, however, these interest rates should be based on objectively comprehensible trading data – and no longer on estimates by traders.
Financial transactions worth several hundred trillion dollars are based on the Libor alone. Every day the banks report the interest rates at which they lend each other money – indices such as the Libor and the Euribor are then determined from this information. Ultimately, almost all interest rates are based on the reference interest rate – including the interest that small savers collect for their daily money or home builders pay for their mortgage loan.
The draft law that EU Internal Market Commissioner Michel Barnier presented in Brussels, however, is not quite as strict as originally planned. Contrary to earlier considerations, the new European stock exchange regulator Esma will not become the central supervisory authority. Rather, it is planned that Esma will exchange information with the national supervisors – in Germany that would be BaFin.
"Barnier’s proposals are disappointing," said the Green finance expert in the European Parliament, Sven Giegold. "The national supervisors did not notice the earlier manipulations. I would expect more independence from a European body. But the Commission has given in to British demands to keep supervision of the London Libor. That is a mistake."
Why the British brake
Countless foreign exchange and commodity transactions take place via the London trading center and the major banks there. The British government therefore regularly slows down when it comes to ceding more powers to the EU in financial market regulation. The Commission’s proposals have yet to be approved by the European Parliament and the Council before any law comes into force
Barnier defended the plans: for the first time it was ensured that the banks would be checked when reporting reference rates. The confidence of the markets has been deeply shaken by the manipulations in recent years. "This can not go on like this anymore."
Investigation against banks
According to the authorities’ knowledge, traders around the world have made illegal agreements to manipulate the Libor in their favor and to reap trade profits. More than a dozen banks are being investigated, including Deutsche Bank.