Articles/Columns
LIBOR Manipulation
As reported by the Wall Street Journal (WSJ), Barclays admitted last week to manipulating the LIBOR (London InterBank Offered Rate) and agreed to pay regulators both in Britain and the U.S. a penalty of roughly $450 million. Earlier this week the Chairman of Barclays stepped down, and due to ongoing pressure from regulators, CEO Bob Diamond and COO Jerry del Missier also resigned this week. More than $360 trillion in assets worldwide are indexed to LIBOR, and a large amount of those assets (i.e. debt instruments) are directly tied to consumers’ borrowing rates through mortgages and other loans (cars, credit cards, education, etc.). The two main reasons for Barclays to manipulate the LIBOR, as reported by the WSJ, were to first improve margins on internal trades by artificially raising the LIBOR and cashing in on existing bets for a higher LIBOR average. The second (allegedly in response to pressure from the Bank of England) was to report lower than actual LIBOR to give a false impression of stability toward the market and to regulators, especially during the recent financial crisis period. LIBOR, as simply explained by the Economist: “The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and LIBOR is the average of those left. Barclays has admitted to asking traders to keep its numbers in the top four (and so be discarded), but not high enough to draw attention to it.” This rate-fixing of LIBOR at Barclays appears to be just the tip of the iceberg. Bloomberg reports that U.S., Asian and European regulators are now investigating more than a dozen banks around the world for collusion in setting interbank lending rates. Some of the leading global banks who disclosed their involvement in the investigations are JPMorgan Chase, Citigroup, Deutsche Bank, HSBC, RBS and UBS. A Swiss commission is currently investigating UBS (prompted by their “application for leniency”) as well another Swiss bank and 10 other international banks on “alleged manipulation of LIBOR and TIBOR (the Tokyo InterBank Offered Rate),” as reported by the Economist. Consequently, “If attempts to manipulate LIBOR were successful, then this would be the biggest securities fraud in history, affecting investors and borrowers around the world,” the Economist states and continues; “That opens the door to litigation not just by the direct customers of implicated banks, but by anyone with a financial interest in LIBOR. The lawsuits have already begun.” Interest rate price fixing could cost banks billions or more in litigation and regulatory liabilities – an amount too great to bail out, again. The house of cards may start falling, starting first with an Ace of Diamond.
Variations in the Submitted LIBOR in 2008
Source: Economist
High and Low Submitters of LIBOR Estimates from 2007 to 2009
Source: Economist
（2012/7/6 掲載）