Can we please keep the libor fixing at 5. It would really help.
Financial Crime What is Libor and how is it manipulated? How have some traders fiddled Libor, one of the City's key benchmark rates, and why does it matter? All this for the manipulation of the Libor benchmark rate.
But what is Libor, and why does it matter how it is set? Libor stands for the London Inter-Bank Offered Rate and is the average cost of borrowing for banks, calculated daily. That average is taken as official Libor, which is used to price trillions of pounds of loans and financial products across the world.
The rate is worked out by asking banks to submit their borrowing costs, discarding the top four and bottom four rates, and taking the average of the rest.
Sixteen banks are involved, so Libor ends up being the average of eight submissions. There are, in fact, several Libor rates measuring the cost of borrowing for different lengths of time, of which three-month Libor is seen as the benchmark.
Libor is also calculated for different currencies of which Libor rate manipulation, in euros, is one. Why is it important?
You might remember the term from the Northern Rock crisis. Stress could be seen in the cost of Libor over the Bank of England's base rate, which peaked in October after the collapse of Lehman Brothers.
As the Libor rate crept up further above the base rate, it implied that banks were nervous about lending to each other. It is commonly used as a benchmark for financial products, such as loans, mortgages and savings rates.
How has it been rigged? Libor submissions are very predictable, and the system didn't take much work to rig. Co-ordinating with contacts at other banks, crooked traders could enter Libor numbers that affected the submissions used.
That meant that over very short periods, the rate could be moved in one direction or the other, as desired.
But the rate couldn't be influenced for too long in one direction. Without a common cause to do so, traders at each bank would face too strong an incentive to break ranks, and profit off their counterparts.
Will I have lost out? Unless you work in the industry, probably not. The movements in Libor would seem tiny to those who took out loans and mortgages benchmarked off the rate. Regulators never managed to identify an obvious victim of the manipulation, despite evidence that it went on for years.
Only during a few periods did traders push the Libor rate in one direction in a sustained fashion. Banks were thought to have "lowballed" the rate during the crisis.
The phrase refers to the idea that banks intentionally pushed down the Libor rate, to suggest that they were in better shape than they actually were.
There "was a suspicion that was being dealt with by conduct authorities that banks were lowballing Libor for purposes of self-protection", Bank of England Governor Mark Carney said in But for the majority of the time, consumers likely would not have noticed the difference between a manipulated and "true" or "proper" Libor rate.
That doesn't mean that rigging wasn't hugely profitable - but this was because those who traded on small variations in it could make huge sums, not because the man on the street was getting ripped off.As for the excessive income of bankers, central bank official said that Libor rate manipulation scandal was a turning point, and salaries and bonuses are about to fall, although "there is a long way" until they reach acceptable levels.
LIBOR serves as the primary benchmark for short-term interest rates globally and is used as a reference rate for many interest rate contracts, mortgages, credit cards, student loans, and other. Libor is an interest rate based on the rates that designated banks for each currency would have to pay for an unsecured loan for each designated maturity period.
Feb 07, · The attempts at manipulation within RBS were so casual that one trader joked that he moved his fixes day to day as much as a prostitute draws up and down her underwear, while a broker at another firm offered a RBS rate submitter a steak dinner in .
Two International Bank Managers Charged in Libor Interest Rate Manipulation Scheme Two French bank managers were indicted today for participating in a scheme to transmit false and misleading information related to the London Interbank Offered Rate (LIBOR), a global benchmark interest rate to which trillions of dollars of financial transactions.
To maintain appearances, banks concocted a rate – the London interbank offer rate (LIBOR) – that purported to reflect bank money costs. That was LIBOR manipulation in the public service.