RBS Withdraws From Tibor Panel

Royal Bank of Scotland has pulled out of the panels that set Tibor, Japan’s version of Libor, amid a global probe into alleged manipulation of interbank lending rates by traders at investment banks.

The Royal Bank of Scotland Headquarters
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The Royal Bank of Scotland Headquarters

The decision, implemented last month, raises further questions over the systems that rely on voluntary submissions from banks to create benchmarks for the pricing of huge amounts of loans, futures and swaps.

RBS said it had decided to end its participation on the panels of banks contributing to Tibor “as part of the process of business rationalisation” begun in January, when Stephen Hester, chief executive, announced another round of cuts in its markets business.

The bank, majority owned by the UK government since its rescue in 2008, has also withdrawn from the US dollar Hibor panel in Hong Kong, effective last month, and is set to withdraw from the Hong Kong dollar Hibor panel in October.

RBS’s withdrawal leaves just three non-Japanese banks—JPMorgan , BNP Paribas and Deutsche Bank —on the 15-strong panel that sets the offshore benchmarks known as Euroyen Tibor, and just one—BNP Paribas—on the onshore panel.

UBS and Citigroup withdrew earlier this year, shortly after a regulatory probe found evidence of attempted manipulation of Tibor rates at both banks.

The Japanese Bankers’ Association, the self-regulating body in charge of managing Tibor, says it is considering changes to improve its quote-gathering process, which is modelled on the Libor process governed by the British Bankers’ Association.

The key difference between the Tibor and Libor processes is that banks on the Tibor panel are asked to quote estimates of the prevailing market rates for unsecured funding, rather than the rates at which each bank thinks it could obtain funds. Like the BBA, the JBA then strips out the top two and bottom two quotes and averages the remainder.

However, participants in Japan’s debt markets have long observed that Tibor rates are consistently higher than equivalent rates for yen Libor quoted in London’s money markets. The current three-month Tibor rate, for example, is 0.337 percent, compared to three-month yen Libor at 0.195 percent.

Decisions by foreign banks to pull out were “pragmatic”, said one trader at a non-panel bank in Tokyo.

Seiichi Tsurumi, a deputy general manager at the JBA, said that the association would take its cue from changes proposed by the BBA, which launched a “comprehensive review” of its processes in March. “What they are doing about Libor might have some influence on the operation of Tibor,” he said.

He added that the JBA’s emphasis on prevailing market rates theoretically reduces the incentive for individual banks to seek to influence the outcome. But, he said, “I can’t say there is no room for manipulation. There is always some risk.”