Libor Litigation and the Role of Screening: The Need for Enhanced Compliance Programs

Rosa Abrantes-Metz, Jul 28, 2011

The U.S. Department of Justice, the Securities and Exchange Commission, and other regulatory agencies have recently made allegations of a possible conspiracy to manipulate the U.S. dollar Libor rate (“Libor”) by several major banks. These allegations followed the application of empirical methods known as screens to flag unexpected patterns in the Libor.Screens use commonly available data such as prices, costs, market shares, bids, transaction quotes, spreads, volumes, and other data to identify patterns that are anomalous or highly improbable. A survey of screening methodologies and their multiple applications can be found in Abrantes-Metz & Bajari (2009, 2010) and Harrington (2008). The use of these methods in litigation is detailed in the 2010 volume Proof of Conspiracy under Antitrust Federal Laws, by the American Bar Association.

Competition authorities and other agencies worldwide have started to use screens to detect market conspiracies and manipulations. The question we will address in this article is whether such screens can supplement the internal monitoring and compliance efforts of private companies. Using the Libor litigation as our example, we explore whether the banks themselves could have used screens to help avoid the current investigations some are now facing, at least to some extent.