Intercontinental Exchange Inc., which took over administering the London interbank offered rate this year, is planning to excuse the smallest banks from paying new fees it started charging users of the interest-rate benchmark, according to a person with knowledge of the matter.
The decision follows pushback from banking groups, one of which said that some lenders might stop using Libor as a benchmark for their loans because they considered the licensing fee too high. More than $300 trillion of securities, loans and derivatives are tied to the measure.
“It's valuable that they appear to have recognized that a blanket fee was cost prohibitive for a lot of small institutions,” Denyette DePierro, a vice president and senior counsel at the American Bankers Association, said yesterday in a telephone interview. “We've been having extensive conversations with them since July, and the fact that we're expecting them to be responsive is positive.”
Banks with less than $1.5 billion of assets will pay nothing, while the fee will be cut to $2,000 from $16,000 for those with $1.5 billion to $10 billion of assets, said the person, who asked not to be named because the decision hasn't been announced. The annual fee covers actions such as references to Libor in contracts and its use in setting loan rates.
Brookly McLaughlin, an ICE spokeswoman, declined to comment. Chief Executive Officer Jeff Sprecher said on an Aug. 7 conference call to discuss earnings that the company would be taking input and “fine tuning” its approach to the fees.
Libor, previously managed by the British Bankers Association, came under scrutiny by regulators across the globe amid allegations that traders manipulated key market benchmarks for profit.
Intercontinental Exchange's ICE Benchmark Administration unit last month proposed standardizing how banks calculate their submissions as it seeks to bolster confidence in the measure. The company has cited the costs involved in modernizing the benchmark as justifying the new fees, which can be as high as $40,000 annually for using Libor in multiple currencies.
Aleis Stokes, a spokeswoman for the Independent Community Bankers of America, didn't respond to messages seeking comment yesterday. The group had told ICE in a letter that the new fees would be “very problematic for thousands” of lenders.
Bloomberg News
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