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LONDON, March 18 (Reuters) - The tarnished Libor interestrate benchmark should be replaced with a range of referencerates based on actual market transactions by banks, a globalgroup of central bankers said on Monday.
Barclays, Royal Bank of Scotland (RBS) andUBS have all been fined for rigging the Londoninterbank offered rate, which regulators are now reforming.
The rate is compiled by banks submitting quotes for therates at which they believe they could borrow from another bank.It is used to price products worth trillions of dollars, rangingfrom home loans to credit cards, but central bankers signalledthat its days ought to be numbered.
"It is clear that central banks must play an important rolein supporting the development of alternative reference rates,"Bank of England Governor Mervyn King said in a statement.
King chairs a committee of central bankers at the Bank forInternational Settlements, which on Monday published a report onthe role central banks could play in creating a choice of rates.
There is demand for greater use of transaction data toproduce a range of reference interest rates suitable fordifferent purposes, the report said.
It also said that there should be "robust fallbackarrangements" to cover the possibility of a breakdown in themarket on which the main reference rate is based. The interbankmarket, which Libor reflects, dried up completely during thefinancial crisis of 2007-09 .
Central banks can promote alternative rates such asovernight rates and overnight index swaps rates, or generalcollateral repo rates, the report said. These refer to contractsbetween banks based on expected interest rates.
Some regulators remain cautious about a rapid shift tomarket-based transactions, given the huge volume of contractsstill using Libor, while others say that such a move is overdue.
"In certain cases, central banks or supervisory authoritiescould become more actively involved in producing referencerates," the report said.
Thomson Reuters, parent company of Reuters, has beencalculating and distributing Libor rates for Libor's sponsor,the British Bankers' Association, since 2005.
