The Australian has a short piece with with the head of the Reserve Bank’s research department, Alexandra Heath, quoted as saying that BBSW, Australia’s version of Libor, couldn’t be rorted in the way that occurred in the UK:
“I think there’s been a lot of effort put into making sure that it operates in an effective manner”
That’s true, I think. The Australian Financial Markets Association (AFMA), of which I was previously a member, is responsible for overseeing BBSW rate each morning. It is an industry body but in my experience is a progressive organisation that takes seriously the regulation of BBSW. This includes the constant professional development of accredited “dealers” and organisations who are members.
The Australian quotes Dr Heath as saying:
“We’ve paid attention to the integrity of the bank bill swap rate rate over the years…Since August 2007, the way the crisis has evolved has given policy-makers and regulators a chance to see the vulnerabilities and interconnections that were previously clouded by the volatility…They’ve responded to what they’ve learned by putting in huge efforts to improve risk management and improve transparency, with a huge range of regulatory reform under way.”
All of this is true, both of AFMA and in different ways the more senior overseers of the financial system, the RBA and APRA. Whether or not they have got there I will leave to you and my erudite and knowledgable colleague Deep T.
But the question of BBSW everyone seems to want to know is whether or not BBSW can be manipulated. The simple answer is no. Not under normal conditions, where each bank puts its view of where rates are and where it would be happy to buy and sell bank bills from the Primary Dealer panel that makes up BBSW.
The more complex answer is a qualified maybe. But that maybe would require lawbreaking and collusion and while I know some will want to take the comment stream down this route, in my experience the reality of the Australian financial landscape is that this simply doesn’t happen in the setting of BBSW.