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An Overview of the British Bankers’ Association, the source of LIBOR
January 19, 2009
Let’s start with a confession: a group of Yanks is responsible for LIBORATED. In turn, we know that the British Bankers’ Association (BBA) is responsible for the LIBOR index, our reason for being. As we contemplate our British benefactors, we sort through images of UK bankers that come mainly from the media. There’s Colonel Smithers of “Goldfinger,” the cultured banking executive who briefs James Bond on the title villain’s smuggling operation. Then there are the Monty Python portrayals of bowler-clad, pinstriped authority figures who essentially demand ridicule. Despite the misinformation rife in “the colonies,” we know the BBA, the hub of British banking and origin point of LIBOR, is not a place of Bondian intrigue or Python parody.
The BBA is a not-for-profit trade association representing banks doing business in the United Kingdom. The BBA’s headquarters are located at 105-108 Old Broad Street in London’s financial district. The group comprises over 220 member banks from 60 countries and bills its collective as the world’s largest banking center. BBA institutions hold nearly £7 trillion in assets and 70% of individuals’ deposits in the United Kingdom, amounting to approximately 150 million accounts.
The BBA was established in 1919, expanding its purview a half-century later with the acceptance of foreign banks and British merchant banks as members. The association became known as the voice of the banking industry in the United Kingdom, a mission that grew in complexity and significance with the ascendency of the European Union and the globalization of business and finance.
In its annual report, the BBA lists as major responsibilities:
- Representing members before governments, regulators, European and other international bodies
- Informing publics about banks’ importance to the United Kingdom’s economy, society and culture
- Sharing information and best practice among members
Interpreting and shaping laws and regulations that affect the banking industry - Generating authoritative statistics and research (with LIBOR primary among these data)
- Thought-leadership on the industry’s growth and development
The BBA is the source of LIBOR, launched in January 1986 as a uniform index to support the trading of new and increasingly sophisticated market instruments. LIBOR serves as a guide for short-term interest rates as the BBA culls an average of daily interbank lending rates from designated member banks. LIBOR’s roots go back to the 1970s when a select group of banks began quoting interest rates for the United States dollar. In 1984, the BBA, in coordination with the Bank of England and other institutions, fixed BBA interest settlement rates, developing what would be the prototype for LIBOR.
Looking to the future, BBA executives pledge continued action to deal with the global economic crisis. The association released a paper entitled “LIBOR Governance and Scrutiny,” outlining “enhancements to the current system for producing, checking and verifying the global interest rate benchmark.”
BBA chief executive Angela Knight confirmed the importance of updating LIBOR methodology: “It is appropriate in this global downturn to ensure the continued robustness of this pillar of our financial architecture.”
People around the world are learning more about the British Bankers’ Association and the vital role UK financial institutions play in the global economy, manifested in LIBOR. And the LIBORATED staff has learned to let go of its media-induced stereotypes of British banking. Still, we can’t help thinking that Monty Python, if prompted, could poke fun at the BBA as they do all members of the establishment. (“Welcome to BBA-One, the banking entertainment network. At the sound of the scream, it will be 11 am and time for the LIBOR report.”)
On the other hand, we’re certain that the indomitable Col. Smithers, 007’s partner in brandy, cigars and defense of the economy, would raise his snifter to the BBA, its achievements and its world-class benchmark, LIBOR.