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.

Photo: Getty Images
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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.