The Lie in LIBOR: Seeds of a Cartel?
Rodger Burnett, Lianne Craig, Gurpreet Gchhokar, Nov 28, 2012
LIBOR (London Inter-Bank Offered Rate) is one of the world's most significant interest rate benchmarks used to set payments on financial transactions worldwide with a combined value running into the trillions of dollars. This summer the banking world was shocked by the news that LIBOR appeared to have been subject to prolonged and systemic manipulation by a number of the panel banks involved in the rate-setting process.
The LIBOR scandal has so far seen the resignation from Barclays of former chief executive Bob Diamond and two of his closest aides. Moreover, the unfortunate suggestion that the Bank of England encouraged the suppression of LIBOR during the financial crisis period lingers on. In the United Kingdom, reforms intended to "clean up" LIBOR are being pushed through at an accelerated pace. However, it is the alleged involvement of numerous other banks around the globe, and corresponding regulatory investigations worldwide, which have caused allegations of a suspected cartel to surface.
This article considers revelations that make it impossible to dismiss such allegations with any degree of certainty and considers whether the Wheatley reforms will safeguard against future cartel behavior.