THE STORY OF " L I B O R "
- What is LIBOR?
LIBOR stands for London Interbank Offered Rate. It is the interest rate at which banks offer to lend funds to one another in the international interbank market. LIBOR is the world's most widely used benchmark rate for short-term interest rates as a reference rate for many financial instruments in both financial markets and commercial fields.
Libor is calculated by the Intercontinental Exchange (ICE) and published each business day by Thomson Reuters. There are seven borrowing periods ranging from overnight to one year and. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financial products are tied to Libor
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Libor is calculated by the Intercontinental Exchange (ICE) and published each business day by Thomson Reuters. There are seven borrowing periods ranging from overnight to one year and. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financial products are tied to Libor
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- Who uses LIBOR?
Currently there are 11 to 18 contributor banks for five major currencies (US$, EUR, GBP, JPY, CHF) and member banks are international in scope, with more than sixty nations represented among its 223 members and 37 associated professional firms as of 2008. Seventeen banks for example currently contribute to the fixing of US Dollar Libor. The panel contains the following member banks:
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- LIBOR Manipulation (LIBOR SCANDAL)
The LIBOR scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were.
The scandal became evident as emails and phone records were released during investigations. Evidence showed traders openly asking others to set rates at a specific amount so that a position would be profitable. Regulators in both the United States and United Kingdom levied about $9 billion of dollars in fines on banks involved in the scandal, as well as a slew of criminal charges.
By the beginning of 2013 a worldwide investigation stretching from New York to Switzerland to Tokyo had discovered widespread manipulation of benchmark interbank lending rates by traders and brokers. Barclays was the first bank to settle with regulators.
By the beginning of 2013 a worldwide investigation stretching from New York to Switzerland to Tokyo had discovered widespread manipulation of benchmark interbank lending rates by traders and brokers. Barclays was the first bank to settle with regulators.
Following the revealing of the LIBOR collusion, Britain’s Financial Conduct Authority (FCA) removed LIBOR supervision from the British Bankers’ Association (BBA) and delivered it to the ICE Benchmark Administration (IBA). The IBA is an independent UK subsidiary of the private U.S.-based exchange operator Intercontinental Exchange (ICE). LIBOR is now commonly known as LIBOR ICE. This shift been significant in restoring its credibility and integrity.
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- How is LIBOR manipulated?
Since the rates submitted are not actual transactions, it has been suggested that banks could have submitted false figures. It is alleged that traders at several banks planned to influence the final average rate by agreeing amongst themselves to submit rates that were either higher or lower than their actual estimates.
During the past few years Barclays Bank, JP Morgan, Swiss bank UBS, Royal Bank of Scotland and Deutsche Bank have all been fined by financial regulators for this practice, which is seen as market manipulation and corrosive to trust in the financial markets.
During the past few years Barclays Bank, JP Morgan, Swiss bank UBS, Royal Bank of Scotland and Deutsche Bank have all been fined by financial regulators for this practice, which is seen as market manipulation and corrosive to trust in the financial markets.
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- Effects from LIBOR manipulation
- As an investor
Some financial products are based on Libor. Several mutual-fund companies are looking into whether their funds have been harmed by alleged interest-rate rigging by large banks.
- As a borrower
Libor is the dominant index for subprime loans, especially mortgages.
The allegations so far suggest that the banks set the Libor rate at artificially low rates so as not to suggest that interbank lending had frozen up. Consumers who received a loan during those times may have benefitted with these lower rates. However, consumers who borrowed during times when the Libor rate might have been pushed artificially high were hurt by these actions.
The allegations so far suggest that the banks set the Libor rate at artificially low rates so as not to suggest that interbank lending had frozen up. Consumers who received a loan during those times may have benefitted with these lower rates. However, consumers who borrowed during times when the Libor rate might have been pushed artificially high were hurt by these actions.
- As a bank customer
In 2013, London's Barclay's bank was the first bank to confess to misconduct. Sixteen banks are under investigation for manipulating the Libor or other rate indexes to get extra profits and limit losses on their trading positions. Such losses would cut profits, causing big banks to look elsewhere for revenue. This could affect fees and rates that banks charge their customers.
- As a current or future retiree
The Libor scandal involves charges that banks rigged interest rates in two ways are to gain more profits for their trading desks and to appear more financially stable, especially during the financial crisis. Both charges would hurt retirees and future retirees relying on pensions for income.
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- Regulator's response to the LIBOR manipulation
Regulators in the US, the UK, and the European Union have fined banks more than $9 billion for rigging Libor, which builds over $300 trillion worth of loans worldwide.
In December 2012, Swiss banking giant UBS was slapped with the biggest Libor-related fine up to that point, paying global regulators a combined $1.5 billion in penalties.
In December 2012, Swiss banking giant UBS was slapped with the biggest Libor-related fine up to that point, paying global regulators a combined $1.5 billion in penalties.
The complaint, led by the U.S. Commodity Futures Trading Commission (CFTC), cited over two thousand instances of wrongdoing committed by dozens of UBS employees. Then, in December 2013, EU regulatory authorities settled their investigation into Barclays, Deutsche Bank, RBS, and Société Générale which were all found guilty of colluding to manipulate market rates between 2005 and 2008. JP Morgan Chase and Citigroup also became the first U.S. institutions fined, although with much smaller penalties.
Moreover, authorities in both the UK and the US have brought criminal charges against individual traders and brokers for their roles in manipulating rates, though the success of these prosecutions has been mixed. The scandal has sparked calls for deeper reform of the entire Libor rate-setting system, as well as harsher penalties for offending individuals and institutions.
Individual punishment included more than one hundred traders or brokers who involved in labor manipulate were fired or suspended. Bank executives pled ignorance of the misconduct, but a number of them, including former Barclay’s CEO Bob Diamond and Rabobank CEO Piet Moerland, have been forced out.
Moreover, authorities in both the UK and the US have brought criminal charges against individual traders and brokers for their roles in manipulating rates, though the success of these prosecutions has been mixed. The scandal has sparked calls for deeper reform of the entire Libor rate-setting system, as well as harsher penalties for offending individuals and institutions.
Individual punishment included more than one hundred traders or brokers who involved in labor manipulate were fired or suspended. Bank executives pled ignorance of the misconduct, but a number of them, including former Barclay’s CEO Bob Diamond and Rabobank CEO Piet Moerland, have been forced out.
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:: CITATIONS ::
https://www.investopedia.com/terms/l/libor-scandal.asp#ixzz57Kh4VKOj
https://www.cfr.org/backgrounder/understanding-libor-scandal
https://www.scbeic.com/th/detail/product/999
https://en.wikipedia.org/wiki/Libor_scandal
http://www.telegraph.co.uk/finance/financial-crime/11781091/What-is-Libor-and-how-is-it-manipulated.html
https://www.csmonitor.com/Business/2012/0925/Five-ways-big-banks-Libor-scandal-affects-you/As-a-borrower
http://www.bbc.com/news/business-19199683
