Our good friend Das wrote a very interesting piece about LIBOR and the background of its fixing. Unfortunately, this is a clear case of the fox watching the hen-house and there will be more heads rolling in near future.
In a Fix
In June 2012, UK and American authorities fined UK‘s Barclays Banks £290 million (US$450 million) for manipulating key money market benchmark rates, such as the London Interbank Offered Rate (“LIBOR”) and Euro Interbank Offered rates (“EuroIBOR”). The settlement follows a lengthy investigation into fixing money market rates by regulators, under way for at least 2 or more years. In 2011, Swiss bank UBS disclosed that as part of the investigation it had received demands for information on “whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate LIBOR rates at certain times”. The Wall Street Journal in May 2008 published a study suggesting that banks might have understated borrowing costs. An academic study published the same year found that LIBOR had remained low whilst bank risk was increasing. Individual bank‘s rate quotes remained very close, surprising given divergences in perceived credit quality.
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