Survey: Investors expect Libor to be replaced within five years

A recent poll by Bloomberg revealed that 44 percent of global investors expect the London interbank offered rate, commonly known as Libor, to be replaced by a more regulated benchmark within the next five years.

Thirty-four percent of poll respondents predicted that the rate will continue to be set using the current process while 22 percent said that they were unsure, Businessweek reports.

Public and investor confidence in Libor has taken a hit as regulatory authorities continue the ongoing investigation into whether certain financial institutions attempted to manipulate Libor to deflect concerns about the banks’ financial health and to profit on certain derivatives positions.

Barclays, Britain’s second-largest bank by assets, agreed to pay $460 million to U.S. and British authorities for its role in the rate rigging, leading global financial investors, authorities and lawmakers to question the integrity of Libor.

“The Libor scandal should not be something to be hidden under the carpet because it affects the correct functioning of financial markets and the economy as a whole,” Mario Cribari, the head of asset management at Switzerland-based Veco Invest SA and participant in the poll, said, according to Businessweek.

Libor is calculated by the British Bankers’ Association through a survey of lenders that asks how much it would cost them to borrow from one another for 15 different periods. Investigators are examining instances in which traders coordinated submissions to boost profits on derivatives tied to rates for global currencies.

Timothy Geithner, the U.S. secretary of the treasury, said that unregulated groups like the BBA should not be responsible for setting Libor rates.

“We have to take a careful look at other parts of the financial system where the markets rely heavily on private organizations composed of private firms like the BBA that have some quasi-regulatory or self-regulatory role,” Geithner said in July, Businessweek reports. “As you’ve seen in this case, we’ve got to be careful to make sure the system is not relying on associations of private firms that leave us vulnerable to the kind of things we’ve seen.”

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