Towards better reference rate practices: a central bank perspective

A report entitled Towards better reference rate practices: a central bank perspective has been released today by a Working Group established by the Economic Consultative Committee (ECC). Chaired by Hiroshi Nakaso, Assistant Governor, Bank of Japan, the Working Group comprised officials from 13 central banks and monetary authorities.

The report reviews issues in relation to the use and production of reference interest rates from the perspective of central banks. These issues reflect the possible risks for monetary policy transmission and financial stability that may arise from deficiencies in the design of reference interest rates, market abuse, or from market participants using reference interest rates which embody economic exposures other than the ones they actually want or need.

In parallel to initiatives in other forums and jurisdictions, including work by the International Organization of Securities Commissions (IOSCO), the European Banking Authority (EBA) / European Securities and Markets Authority (ESMA) and the UK Wheatley Review, the report provides recommendations on how to improve reference rate practices from a central bank perspective.

The Working Group identifies an urgent need to strengthen the reliability and robustness of existing reference rates and a strong case for enhancing reference rate choice. Both call for prompt action by the private and the public sector.

Sir Mervyn King, Chairman of the ECC and the Global Economy Meeting and Governor of the Bank of England, said, "The report released today makes a significant contribution to the ongoing examination of reference rates used in financial markets. It is clear that central banks must play an important role in supporting the development of alternative reference rates."

The Working Group was set up last September to examine reference rates used in financial markets and to consult with the market in order to provide input into the broader official debate coordinated by the Financial Stability Board.

Notes for editors:

The Economic Consultative Committee (ECC) is an informal group thatsupports the Global Economy Meeting (GEM). The ECC includes all Bank for International Settlements (BIS) Board member Governors, the central bank Governors from India and Brazil, and the BIS General Manager. The ECC assembles proposals for consideration by the GEM. In addition, the ECC Chairman initiates recommendations to the GEM on the appointment of chairs of the main central bank committees (see below) and on the composition and organisation of those committees.

The Global Economy Meeting (GEM) is one of the principal bimonthly meetingsheld at the BIS. It comprises the Governors of 30 BIS member central banks in major advanced and emerging market economies that account for about four fifths of global GDP. The GEM has two main roles: (i) monitoring and assessing developments, risks and opportunities in the world economy and the global financial system; and (ii) providing guidance to the Basel-based central bank committees, especially the main three - the Committee on the Global Financial System, the Committee on Payment and Settlement Systems and the Markets Committee. The GEM also receives reports from the chairs of those committees and decides on publication.