LIBOR, the interbank lending rate, needs a radical overhaul.
Bankers will always focus on quick profits, even if it means breaking rules.
But even when caught, few (if any) individual bankers pay fines out of their own pockets or go to jail.
The FT's Frank Partnoy has a solution.
Set up an international body called the LIBOR TRUST.
Then when the banks set their estimates of rates, the very highest and the very lowest should be forced to commit to them.
The bank with the lowest borrowing rate would then lend say £1bn, to the Trust at the low rate it claims it can get.
The bank posting the highest rate would have to borrow the £1bn from the Trust at the higher rate it claims it pays to borrow.
If either bank is doing anything dodgy both are then in effect paying an instantaneous fine covering the difference in the actual borrowing market rate.
Will this stop the banks getting together and agreeing to a narrow rate band or one rate?
No. But they already probably do this anyway!
Over to you Vince Cable.
