The UK's attempts to reform the discredited Libor system were last night facing a barrage of international scepticism, as the Obama administration pushed to lead a global review of the benchmark interest rate and the Governor of the Bank of Canada suggested that Libor could be replaced entirely.
Tim Geithner, US Treasury secretary, expressed a lack of confidence in the reviews being conducted by the UK Treasury, under Martin Wheatley, chief executive-designate of the Financial Conduct Authority and by the British Bankers Association, which manages Libor.
Instead, Mr Geithner plans to push reform proposals in consultation with other countries whose financial markets use the Libor rate to price everything from mortgages and business loans to trillions of dollars in complex derivatives.
"They have not fixed the problems at the centre of this rate," Mr Geithner said yesterday. "They took modest reforms in response to our suggestions in 2008 but they didn't go far enough. We have now taken the initiative to set up a broader effort involving all the countries that matter around the world, to try to make sure that what happens now is reforms that fix the underlying problem.
"The British are obviously going to be central to that but we're not going to leave it completely to the British because the world has a stake in fixing this now."
Published emails show that Mr Geithner informed the Bank of England in 2008 that it was concerned about potential manipulation of the rate and even submitted a list of reform proposals. Sir Mervyn King, Governor of the Bank, had raised market worries about the accuracy of Libor earlier in the year with Mr Geithner and other global regulators.
Sir Mervyn conceded yesterday that there would have to be international input into the process of reforming Libor – also known as the London interbank offered rate – whose legitimacy as a benchmark for global financial markets was undermined by revelations that it was manipulated for years by traders at Barclays and potentially other banks.
The issue will be on the agenda at the next bi-monthly meeting of global central bankers in Basel, Switzerland, in September. In a letter to his fellow central bankers, Sir Mervyn told them it is "very clear that radical reforms of the Libor system are needed".
Mr Wheatley's review was announced by Chancellor George Osborne after Barclays was fined £290m for submitting fake borrowing rates that influenced the calculation of Libor. Its terms of reference are still being drawn up.
Meanwhile, other banks are still under investigation over potential manipulation of Libor and a similar rate, Euribor. Bank of America, the US financial giant, yesterday became the latest bank to say it had received requests for information for regulators. It was reported last night that Crédit Agricole , HSBC, Deutsche Bank and Société Générale have become the main focus of regulators' inquiries.
Goldman Sachs chief executive Lloyd Blankfein, speaking at the Economic Club of Washington, said the Libor scandal was another blow to the integrity of the financial system, which he said "has already been undermined so substantially... There was this huge hole to dig out of in terms of getting the trust back, and now it's just that much deeper. That's going to be a big burden for all of us."
Mark Carney, the governor of the Bank of Canada, said that the Basel meeting of central bankers could examine not just how Libor is calculated, but whether regulators should push to end its central role in the financial markets entirely.
"In terms of the alternatives, there is an attraction to moving to more, obviously, market-based rates if possible and that may be different in different jurisdictions," he said.
"I don't want to prescribe – it's very early days – but we may end up with different types of rates used in different currencies and that's why this should be as co-ordinated as possible internationally."
The European Central Bank has also joined the fray. It is putting pressure on the organiser of Euribor, a parallel benchmark interest rate also manipulated by Barclays, to introduce its own overhaul.
ECB officials have suggested shifting the basis of the calculation to actual market lending rates instead of the current system which, like Libor's, uses banks' assessments of what they expect to be charged to borrow money. Regulators fear the existing set-up allows too much discretion.