Oversight committees in both the House and Senate have begun investigating the London InterBank Offered Rate (LIBOR) scandal, where bankers colluded to fix the important interest rate marker. While Congress looks into past wrongdoing (and how much regulators knew about what was going on), observers of the financial sector are arguing that updated regulations — starting with a strong Volcker rule to rein in banks’ risky trading — may be necessary to prevent something like the LIBOR catastrophe from happening in the future:
- The staunchly pro-business Economist, calling LIBOR the financial sector’s “tobacco moment,” called for “a new system” for setting the LIBOR rate.
- In the New York Times, Joe Nocera wrote that “there is going to be a lot more opportunities for Americans to become outraged over this scandal. And, maybe, to finally summon the will to change banking once and for all.”
- Also in the Times, Gretchen Mortenson touted “a rule proposed by the Commodity Futures Trading Commission that would require pretrade price transparency in the swaps market,” but worries that the financial sector is pushing Congress to kill it.
- Former Secretary of Labor Robert Reich went further, demanding “that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.”
- And former White House economist Jared Bernstein explains how the LIBOR contretemps gives the lie to big banks’ notion that they don’t need to be regulated because they “self-regulate:”
The head of Barclays has already had to step down due to the scandal, though he will be keeping his £2 million salary.