Naked Capitalism republishes a review of potential problems in the CDS market.

Changes were rumoured the LIBOR setting mechanism:

The group that sets the London interbank offered rate can restore its credibility by following the example of Australia and New Zealand, said Morgan Stanley. Or, the British Bankers’ Association could look to the U.S., according to UBS AG and Credit Suisse Group.

The loss of confidence in the benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages spurred the world’s biggest banks to recommend fixes, though they reached no consensus. The BBA plans to announce after 5 p.m. today the first changes to Libor in 10 years after the Basel-based Bank for International Settlements suggested in March that some lenders were misstating borrowing costs to avoid speculation that they were in financial straits.

I imagine that being a world-scale benchmark is very useful for the participants; but the rumours were unfounded:

The group that oversees the London interbank offered rate will implement no changes to the way the measure is set, confounding critics who said it has become unreliable as a gauge of the cost of borrowing.

“The committee will be strengthening the oversight of BBA Libor,” the British Bankers’ Association said in an e-mailed statement today. “The details will be published in due course.” The composition of the bank panels that contribute rates were left unchanged, it said.

Berger and Nitsch have an interesting piece on VoxEU regarding the optimal size of Central Bank Governing Councils … there are concerns that too much democracy is enough!

A few weeks ago, the European Commission recommended that Slovakia should be allowed to join the eurozone as of January 1, 2009. When the member states follow this recommendation and accept Slovakia’s adoption of the euro, the country will become the sixteenth member of the European single currency zone.