BBA cedes Libor role – who will replace them?

The government may want a place in the process.

The British Bankers Association has voted to cede its role in the setting of Libor, the benchmark of borrowing costs which lay at the centre of the Barclays rate-fixing scandal.

The BBA, the professional body of the banking industry in Britain, voted to cede its role last week, at the request of officials who, according to the Financial Times (£) plan to announce a replacement process on Friday.

The managing director of the Financial Services Authority, Martin Wheatley, is chairing the review of the reference rates, and the BBA has said in a statement that it:

Seeks to work with the Wheatley review team as they complete their consultation on the future of Libor. If Mr Wheatley’s recommendations include a change of responsibility for Libor, the BBA will support that.

While the BBA has ceded its role, the organisation which sets Libor's sibling rate, Euribor, has no such plans. Even though Euribor was also subject to attempted manipulation by Barclays, the European Banking Federation, which controls it, told the FT that:

There is no comparison with the Libor case. Our stakeholders are national associations and not the banks themselves, this prevents any potential conflict of interest in hosting the governance of benchmarks.

The big question remaining to be answered is what recommendations Wheatley will offer. There have been no shortage of inventive solutions as to how to set Libor in a non-manipulable way.

In July, Frank Portnoy suggested what remains the most ingenious possibility:

The teeth of the new regulation would be a rule requiring the bank that submitted the lowest Libor estimate to lend a significant amount of money, say $1bn, to the Libor Trust at its submitted low rate. Conversely, the bank submitting the highest Libor estimate would be required to borrow the same amount from the Libor Trust, in the relevant currency for the specified period of time, at its submitted high rate.

But as Reviews tend to be less "inventive" and more "gut wrenchingly predictable", it seems more likely he will hew closer to Nils Pratley's suggestion in the Guardian:

A mass of technical issues remain for Martin Wheatley, the Financial Services Authority official leading the inquiry, to address in his report on Friday. For example: how do you switch to surer benchmarks based on actual lending if there are no transactions on a given day in some of the markets? Remember, there is no single Libor rate; instead there are benchmarks covering 15 borrowing periods in 10 different currencies.

That's one detailed puzzle for Wheatley to solve. But his main proposal should be easy: make it a criminal act to try to manipulate Libor.

Expect more legislation, more intervention, and a lot of locking of stable doors when the horse is nowhere to be found.

Buildings in the City. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.