Japanese banking body to tighten interbank benchmark rate setting

Taiga Uranaka
Friday, 27 Dec 2013 | 12:26 AM ET

TOKYO, Dec 27 (Reuters) - Japan's banking industry body said it would set up a separate administrator for interbank benchmark rates with more independent monitoring of the rate-setting process, which is under review globally in the wake of rate-rigging scandals.

Authorities in Europe and elsewhere have been pushing for the overhaul of interbank lending-rate setting, which has been criticised for a lack of transparency and given rise to cases of collusion on rate-setting among banks for their advantage.

The Japanese Bankers Association (JBA), which calculates and publishes Tokyo interbank offered rates (Tibor), said on Friday it would set up a separate administrator for the rates. The timing has not been decided, but a source said the administrator was likely to start operations in the first half of next year.

Tibor is the benchmark for an estimated nearly 100 trillion yen ($955.1 billion) worth of bank lending in Japan and several times more for derivatives trades in terms of notional principal, the JBA said.

While the administrator will be 100 percent owned by the JBA, majority of its board will be occupied by outsiders to the banking industry, and outside specialists will also manage its audit team, the association said.

As part of the rate-setting process review, the JBA said it would also cut the number of tenors it publishes for Japanese yen Tibors and euro yen Tibors to six from the current 13 from April 2015.

Earlier this week, Japan's banking regulator, the Financial Services Agency, said it would put benchmark interest rates under stricter regulatory oversight, part of the global trend in which governments are seeking a more active role in setting benchmark rates.

Earlier this month, the European Commission slapped a record 1.7 billion euro ($2.3 billion) fine on six financial institutions, including Deutsche Bank, for manipulating the London Interbank Offered Rate (Libor) and its euro equivalent Euribor.

Britain passed a law requiring Libor to have a new administrator, stripping the British Bankers' Association trade body of that role. Transatlantic exchanges group NYSE Euronext won the tender to administer Libor.

($1 = 104.7000 Japanese yen)

(Reporting by Taiga Uranaka; Editing by Jacqueline Wong)