German regulators urge state eye on bank rates

Berlin (AFP) - German competition and financial market watchdogs Sunday urged greater state oversight on how banks set global interest rates, following the EU's massive fines over the Libor scandal.

In future there should be "stricter oversight and draconian penalties" for wrongdoers, the head of Germany's Monopolies Commission, Daniel Zimmer, told news weekly Der Spiegel.

"The manipulation was made easy for bank employees, there was no sovereign control over the setting of interest rates," he said, calling for reform to capital markets law to close the "loopholes".

The EU Wednesday imposed a record 1.7 billion euros ($2.3 billion) in fines on financial institutions including Germany's Deutsche Bank for rigging key interest rates that affect vast sums of money around the world.

The head of bank supervision at Germany's Federal Financial Supervisory Authority (Bafin), Raimund Roeseler, also called for tighter regulation, in comments to the Welt am Sonntag newspaper.

Roeseler said that "reference rates based on more or less arbitrary estimates are not sustainable".

"When it comes to the most important rates, a government agency must keep an eye on it," he was quoted as saying. "This must not be left in the hands of the private sector alone."

Bafin president Elke Koenig also commented on the Libor scandal, as well as suspicions of rigging of gold and silver rates, in comments to Berlin daily Tagesspiegel.

"We need to seriously consider how to reshape the system so that it is based on actual transactions and independent of individual interests".

"Should that not be enough, we could consider trade monitoring," she said in pre-released comments to be published Monday by the newspaper.

She said that so far it was difficult to quantify the total economic damage of the rate rigging.

"If a rate goes up Monday and down Tuesday because this is perhaps favourable for the bonus calculations of an individual trader, that means that, for example, a home builder whose credit is based on the Libor will also pay more or less," she said.

"So how can you calculate the damage suffered by an individual?"