LIBOR Concerns Raised by SIGTARP

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.

The Special Inspector General for the Troubled Asset Relief Program is concerned that U.S. taxpayers may still be be at risk from manipulation of the London Interbank Offered Rate, a global benchmark interest rate used in several TARP programs.

In its latest quarterly report to Congress SIGTARP recommends that the Federal Reserve and Treasury Department end their reliance on LIBOR. The report notes that LIBOR continues to be used in two TARP programs that will continue for several years: the Public-Private Investment Program and the Term Asset-Backed Securities Loan Facilities.

SIGTARP stressed that Treasury and the Fed need to take immediate action on LIBOR, rather than wait for global LIBOR reform. According to the SIGTARP report there are $598.6 million in outstanding TALF loans, and $5.685 billion in outstanding PPIP debt, with interest rates tied to LIBOR. The programs last until 2015 and 2017.

“Continued use of LIBOR for TARP while it is broken, unreliable, and remains potentially subject to manipulation, undermines public confidence in financial markets and TARP and could put taxpayers at risk,” the report states. Neither the Fed nor Treasury has agreed to implement SIGTARP’s recommendations, the report notes, despite acknowledging concerns about LIBOR’s reliability and integrity.