SINGAPORE/HONG KONG (Reuters) - Royal Bank of Scotland (RBS.L) has ended its contribution to Singapore’s interbank lending rate panels, as banks assess their role in a global rate setting system under heavy scrutiny.
The move by RBS comes amid a review of its markets business that has seen it withdraw from setting other such reference rates in Asia, and a global investigation into rate fixing at the London interbank lending panel.
Bank of America (BAC.N) and RBS on Monday did not appear on a daily page published by Thomson Reuters that lists contributors to Singapore’s U.S. dollar and local currency interbank lending rates, also known as SIBOR.
“During the course of this review, we have decided to end our contribution to the rate setting panels for SIBOR in Singapore,” said RBS Spokeswoman Patricia Choo.
BofA declined to comment on its contribution to SIBOR.
An investigation into manipulation of London interbank lending rates started late last year and seized headlines last month when Barclays paid a $453 million fine to settle with U.S. and U.K. regulators over its role in rate fixing.
“What has emerged from this in terms of policy suggestions is that any rate which is based on estimates rather than actual financial transactions is highly dubious,” said Justin O‘Brien, director of the center for law, markets and regulation at the University of New South Wales in Sydney.
Reuters reported on Sunday that Barclays planned to pull out of the rate-setting panel for interbank lending in the United Arab Emirates.
RBS has already exited panels in Tokyo and Hong Kong, the Financial Times reported earlier this month.
These and other exits raise questions on the validity of the system used for setting interbank lending rates, which are used as a reference point to price other deals such as loans, bond sales and derivative transactions.
“If the number of banks setting the rate falls to a smaller number it will become a less reliable benchmark and makes it more likely to be manipulated. So it doesn’t look good,” said Professor Duan Jin-Chuan, director of the Risk Management Institute at the National University of Singapore.
Late last year, regulators in the U.S. and Britain launched an investigation into London’s interbank lending system. LIBOR, short for London Interbank Offered Rate, underlies an estimated $350 trillion worth of loans and derivatives.
A group of 16 global banks sets the rate by giving daily estimates of how much it would cost them to borrow funds from other banks at varying durations. BofA and RBS are among the 16 that set the LIBOR rates.
SIBOR is a interbank lending reference that affects both savings deposit rates and mortgages in Singapore. Floating rate mortgages in Singapore, for example, are often pegged to the 3-month SIBOR.
The Association of Banks in Singapore (ABS) compiles the rate with the assistance of Thomson Reuters, which collects submissions from participating banks.
Additional reporting by Rachel Armstrong in Singapore and; Lincoln Feast in Sydney; Writing by Michael Flaherty; Editing by Michael Urquhart