Well, the published results of the revision were an anti-climax.  The BBA decision was not to change any of the panel banks, not to include any more banks, in fact to make no changes whatever except to provide an assurance that it would “strengthen its oversight “, but it gave no indication of what measures it would be able to put into place to achieve this. The statement on Friday followed a meeting of the association's independent Foreign Exchange and Money Markets Committee after a review conducted by John Ewan, who directs the setting of BBA Libor. A BBA spokesman could not expand on how the committee might strengthen its oversight or when such measures would be announced. Details would be released “in due course”.

 For a background on what the BBA LIBOR Rate is and how it is derived read the previous article.

 Fidelio Tata, derivatives strategist at RBS Greenwich Capital, said the BBA "would rather do nothing rather than make a change and find out later it was the wrong change".

 There is of course a great deal of criticism around this seeming lack of action but it has certainly taken the focus off the rate.  This could either be because there really is no inconsistency and the volatility is a measure of the difficult times or it has been deemed prudent to take the focus off an issue which could add to the volatility.  The idiom “no news is good news” is certainly in effect.  The criticism is a small price to pay.

 T.J. Marta, a fixed-income strategist at RBC Capital Markets in New York, was concerned that the issue has received as much interest as it has.  He said: “I would have preferred that the issue had been handled more discretely because it caused some disruption to an already dislocated market, but now that we are having the discussion, the best thing they could have done is to make it anonymous for banks to quote a rate.”

 Currently each bank’s rate quote is published on the Website of the Association which although wonderfully transparent can be dangerous for the banks. As Julia Werdigier of the New York Times remarked, “anyone can see which bank would have to pay most to borrow from rivals potentially threatening the bank’s reputation.”

 According to JPMorgan Chase, in the first four months of 2007, the difference between the highest and lowest rates for three-month Libor rates on dollar loans did not exceed 2 basis points, whereas In the same period this year, it was as wide as 17 basis points.

 The credit crisis exposed Libor's flaws, according to Peter Hahn, a research fellow for Cass Business School and a former managing director at Citigroup, because the association identifies its contributors, giving lenders an incentive to underestimate borrowing costs.

 The rate is what it is:  the rate that those chosen 16 banks are borrowing money at amongst themselves.  It is that and only that, and as such does not need to be changed, but this quoted rate is used to calculate rates on at least $350 trillion of derivatives and corporate bonds as well as six million U.S. mortgages. Financial products worth about $150 trillion are indexed to Libor.  If the BBA wishes to retain this esteemed role, then it needs to review more seriously otherwise the industry must derive another benchmark on which to base the price of its products.

 Changes that market participants speculated on and would have liked to have seen included:

• increasing the number of banks in the BBA's daily survey;
• using a median rather than a trimmed mean to calculate the Libor rate; including more U.S. banks on the rate-fixing panel;
• altering the survey question to shift the definition of the rate;
• changing the time of the fix from 11 a.m. London time to better align it with the U.S. market;
• creating an indexed-like Euribor for the dollar.

"This is even a smaller band aid than expected. ... It's frustrating to see people who don't understand how bad the situation is," said Christopher Low, chief economist at FTN Financial in New York.

John Zhu and Edward Hadas argued on Breakingviews.com that major changes to Libor are not needed. Let’s hope that this seeming complacency of the BBA is a display of confidence in their rate and that we are not “in due course” going to find that it was an attempt to keep the market stable for as long as possible under more serious circumstances.

 In the meantime the industry needs to do its own review of the effectiveness of this rate as a measure for the $150 trillion worth of financial products around the world -- everything from auto loans to corporate debt – that are indexed to Libor and come up with their own alternatives, perhaps incorporating the LIBOR rate amongst other indicators.