Libor Fines, Litigation Costs May Be Dwarfed by Economic Toll From Loss of Rate Benchmark
Commentary by guest columnist Frederick Cannon
Federal Reserve Chairman Ben Bernanke’s comments on Tuesday that the Libor scandal “is a major problem for our financial system …we need to address this,” may go down as another understatement by a Fed chairman. Libor underpins the financing of companies throughout the globe, and a loss of confidence in the rate could put the capital markets in reverse, adding to corporate funding costs, reductions in lending and slow economic growth. At KBW, we believe that global central banks need to make reforming Libor and restoring confidence in a global interest-rate index a top priority and soon. To date, confidence in the Libor benchmark continues to erode under increased regulatory scrutiny.