Was Libor rigged in 2007/2008?

vivatifosi

Interesting article in FT. Can't quote due to copyright restrictions. See:

http://www.ft.com/cms/s/0/6e5d1d0e-694e-11e1-9618-00144feabdc0.html#axzz1opih1Eau

It says that there are now 10 agencies across the world looking into whether the Libor was fixed by bankers and brokers to boost their in-house profits.

It mentions three banks that have apparently voluntarily approached regulators: UBS, Citigroup and Barclays. It also mentions the sacking, suspension or other action against staff at JPMC, Deutsche, RBS, HSBC, Icap and RP Martin.

I don't really understand the ramifications of this. I'm hoping a banker will be along shortly to fill in.

ETA: some other articles that are easier to get to (not login reliant):

http://www.economist.com/node/21549961
http://biz.thestar.com.my/news/story.asp?file=/2012/3/12/business/10899382&sec=business

Wookster

This is potentially an enormously serious case. Quite underplayed in the media.

Damages could run into the trillions when you think about how many financial instruments used in the real economy worldwide are priced on LIBOR.

A successful prosecution could bankrupt several global banks.

While no definitive conclusion has been reached, there is no smoke without fire and this is yet another example of banks lining up to bend the rest of the world over a barrel.

vivatifosi

Wookster wrote: »

This is potentially an enormously serious case. Quite underplayed in the media.

That's what I find surprising Wookster. This has been knocking about on specialist sources like Bloomberg since Feb. So why hadn't I heard about it until today? I haven't seen anything about it on the TV news at all, even now. I think it is a complex story, but even so, you'd have thought someone other than the specialists - FT, Economist, Bloomberg, etc - would have picked it up by now.

michaels

I remember at the time there was a lot of discussion (including here) about the rates the banks were quoting not actually being the rates at which they were willing to lend money but at the time it seemed more about [painting a picture of normality/liquidity than fraud...but I guess in the city no one passes up an opportunity to make a profit from the markets.

vulcan1964

"thought someone other than the specialists - FT, Economist, Bloomberg, etc - would have picked it up by now"

In the Uk that would have been the FSA...enough said !

vivatifosi

vulcan1964 wrote: »

"thought someone other than the specialists - FT, Economist, Bloomberg, etc - would have picked it up by now"

In the Uk that would have been the FSA...enough said !

:rotfl:well I was talking about journalists. However on the point of the FSA, it would appear from the article that Barclays self-declared to them, yet the BBA is conducting the broader review into Libor. I've now found an earlier article from the FT (5th Mar) that states 'The Libor rate-setting process is not considered a regulated activity under the UK Financial Services and Markets Act':eek:.

Thrugelmir

michaels wrote: »

I remember at the time there was a lot of discussion (including here) about the rates the banks were quoting not actually being the rates at which they were willing to lend money but at the time it seemed more about [painting a picture of normality/liquidity than fraud...but I guess in the city no one passes up an opportunity to make a profit from the markets.

There's no obligation to lend at LIBOR. It merely sets a series of benchmarks in the market.

The purpose of rigging LIBOR would have had more to do with trading activity than inter bank money lending.

vivatifosi

Thrugelmir wrote: »

There's no obligation to lend at LIBOR. It merely sets a series of benchmarks in the market.

The purpose of rigging LIBOR would have had more to do with trading activity than inter bank money lending.

Do you have any thoughts on what should come of the investigations Thrug?

michaels

If it is a time when libor rates do reflect interbank lending then it is more obvious if a manipulated rate away from the market is quoted.

If libors no longer relate to market interbank levels then there is less preventing rates individual banks adjusting their quotes to manipulate libor for profit?

Thrugelmir wrote: »

There's no obligation to lend at LIBOR. It merely sets a series of benchmarks in the market.

The purpose of rigging LIBOR would have had more to do with trading activity than inter bank money lending.

Thrugelmir

vivatifosi wrote: »

Do you have any thoughts on what should come of the investigations Thrug?

This is news to me. Interesting post. I guess that we shouldn't be surprised though.

Traders have always tried to rig markets to their favour. As even Nick Leeson found the market can turn round and bite you.

Thrugelmir

michaels wrote: »

If it is a time when libor rates do reflect interbank lending then it is more obvious if a manipulated rate away from the market is quoted.

LIBOR is calculated in such a way that there would have to significant collusion between banks to force the rate in a given direction.

As LIBOR is calculated by discarding a number of the lowest and highest bids, and averaging the remainder.