Sibor system is robust, says bank association

Rigging of local benchmark rate 'highly unlikely'

By Melissa Tan, The Straits Times, 5 Jul 2012

THE chances of bank staff here rigging the market's benchmark interest rate as occurred with the Libor in Britain are slim, according to the Association of Banks in Singapore (ABS).

The industry's lead body said the Monetary Authority of Singapore (MAS) pays close attention to Sibor and the ABS itself tightened procedures last October after the Libor scandal surfaced.

It is 'highly unlikely anyone will rig' Sibor, said ABS director Ong-Ang Ai Boon at a briefing yesterday.

Sibor (the Singapore Interbank Offered Rate) reflects the interest rate at which banks lend to each other and is commonly used as a benchmark rate for home loans.

The ABS sets Sibor daily with the help of financial news service Thomson Reuters, which obtains rates from 15 banks.

Contributors include the three local banks and foreign players such as Citibank. All must have a minimum rating of 'A' from at least one credit rating agency.

Libor is produced by the British Bankers' Association in a similar way.

But between 2005 and 2009, during the financial crisis, traders at Barclays and perhaps other banks were feeding in distorted data in the hope of rigging the final Libor number.

Mrs Ong-Ang noted that the MAS monitored Sibor 'very closely' during the global financial crisis.

She also pointed to the relatively small size of the Singapore housing loans market, and suggested that banks here are unlikely to have enough incentive to risk rigging Sibor.

'Sibor is domestic and just for limited usage... it is not an international benchmarking rate, unlike Libor,' added Mrs Ong-Ang.

Libor is used to set the pricing of trillions of dollars worth of derivatives and other financial instruments.

The Barclays role in the scandal brought a fine of £290 million (S$572.6 million) last week and has already claimed the scalps of chief executive Bob Diamond and others.

Several other banks in London have also been implicated.

Mrs Ong-Ang told a briefing: 'We knew about this (rate fixing) some time ago... We did have a look and we did tighten the escalation process (last October) such that if any banks go too way out for too often, there is a red flag and we'll call the bank.

'All the systems are in place. If there is any aberration in the rates, we know who to contact.

'We don't wait for something to happen then look for the fire extinguisher.'

Mrs Ong-Ang added that, earlier this year, the ABS asked Thomson Reuters to analyse bank submission trends to spot those who consistently submit outlier rates.

She also noted that given the small pool of players here, errant behaviour by banks is likely to be detected fairly quickly.

'It won't take that long for somebody to whistleblow.'

She also warned against 'alarmist' declarations, saying the Libor scandal has little impact on Sibor.

There is actually 'nothing wrong with the system' here, Mrs Ong-Ang said, adding: 'We needed to tighten up anyway after the global financial crisis. What we did (last year) was revisit and ensure more escalation. Our controls were there, it was as tight as can be.'

'Frankly, we have tightened as far as we can. Singapore is as best as can be.'

Data banks
THERE are 15 banks contributing data to set the Singapore Interbank Offered Rate (Sibor) for the financial year ending March 31, 2013:

- Bank of America

- Bank of Tokyo-Mitsubishi UFJ

- BNP Paribas

- CA-CIB

- Citibank

- Credit Suisse

- DBS

- Deutsche Bank

- HSBC

- ING

- JPMorgan Chase

- OCBC

- RBS

- Standard Chartered

- UOB