Sweden's FSA backs lenders to keep setting domestic interbank rate

STOCKHOLM, Oct 10 (Reuters) - Sweden's financial watchdog said on Wednesday that banks should retain responsibility for setting Swedish interbank rates, the system for which is under review by the central bank in the wake of the rigging of its London equivalent.

Faith in interbank rates across the globe was shaken earlier this year when Britain's Barclays agreed to pay almost $500 million to settle allegations that it manipulated the London Interbank Offered Rate.

The transparency of Stockholm's Interbank Offered Rate , set by just five banks, has also been questioned by regulators, leading to a review by the central bank and the promise of an overhaul by the rate-setting banks.

"It is important that they feel that they have full responsibility and they have that best if they actually have ownership of that issue themselves," said Martin Andersson, director of the Sweden's Financial Supervisory Authority.

"I would prefer a development where the banks take that role and take it seriously, for at the end of the day this is about their credibility with borrowers and investors."

A report in Britain into setting Libor has recommended that Libor setting be regulated for the first time and traders found manipulating the rate be jailed. The British Bankers Association would also be stripped of its governance and oversight role in Libor.

The Riksbank's review of Stibor will be finished in the autumn. There have been no indications of manipulation of the interbank rate in Sweden, which serves as a reference point for everything from mortgages to complex derivatives with a value of around some $6 trillion in financial contracts.

(Reporting by Johan Ahlander; writing by Simon Johnson; Editing by Patrick Lannin)

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