The Economist：The fog of LIBOR

　　Attempts to improve LIBOR and its equivalents bring fresh problems. Regulators, politicians and industry groups are now poring over ways to improve the calculation of such rates (see Free Exchange). These could include using larger panels of banks and forcing banks to report actual transactions. American authorities have told Barclays to adopt strict governance and reporting rules to ensure its submissions are honest. In isolation each of these changes seems perfectly sensible. Yet in aggregate they pose two big risks.
 
　　The first is that banks may simply stop contributing LIBOR estimates to minimise the risks of being prosecuted or sued. Paul Tucker, the Bank of England official up before MPs this week, said contingency planning has already started to deal with this risk. He also raised the possibility that civil lawsuits against banks might be so large as to undermine financial stability.
 
　　A second risk is that changes to the method of calculating LIBOR could lead to very different numbers being generated. Much bigger panels would include banks that are smaller and less creditworthy than those currently submitting, leading to higher LIBOR rates. Since these numbers are hard-wired into tens of thousands of derivatives contracts and loan agreements, the losers would almost certainly dispute the changes. “If LIBOR 2 is going to give an answer that is structurally higher than the old LIBOR, then it will be worth litigating over,” says one lawyer. “Each basis point might not seem much, but multiplied across the billions in contracts it soon adds up to a pretty big number.”

Source：The Economist, Jul 14th 2012