“Until recently the Canadian version of Libor was just an obscure acronym known only to a handful of traders, but it is ‘probably the most important benchmark’ in the country and the Bank of Canada is taking steps to rein it in, one of the central bank’s leaders said Monday. Cdor, short for the Canadian Dealer Offered Rate, is used to price an enormous amount of financial products, everything from plain vanilla consumer loans to complex interest rate swaps. This means it underpins a huge portion of the Canadian economy, over $10-trillion in total, Timothy Lane, Deputy Governor of the Bank of Canada said. It was the first time an official from the Bank of Canada or any other regulator in this country has produced such an estimate.” John Greenwood wrote for Financial Post. Greenwood continued “‘We will examine how these posted rates are currently used by market participants to see how any possible changes could affect market functioning,’ Mr. Lane said in a speech on Monday at York University’s Schulich School of Business. ‘Given Cdor’s importance, making sure it is robust is essential to the whole Canadian financial system’. Since 2012, a string of international lenders such as Barclays Plc, Citigroup, JPMorgan and the Royal bank of Scotland have paid more than US$6-billion in settlements and fines over allegations they manipulated Libor. Now investors have begun launching civil suits and experts predict that by the time the dust settles, the total amount paid will be close to US$35-billion. Like Libor the Canadian rate is calculated by a group of banks with scant regulatory oversight. After Libor was exposed, policymakers around the world started working together to shore up confidence on major financial benchmarks that are viewed as lynchpins of the financial system. Still, concern is starting to spread to other benchmarks including foreign exchange and gold.” Read the full article here. | Raymond Matt, CFP, CLU, TEP, CHS
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