Anorak | Barclay’s and Conning Libor – what really happened

Barclay’s and Conning Libor – what really happened

by | 28th, June 2012

YOU’LL have seen the stories all over the place about Barclay’s ‘fessin’ up to having tried to manipulate Libor.

Just as background, Libor is the rate at which banks lend to each other. It’s also the rate at which huge numbers of financial contracts are set by. Libor plus 3% wouldn’t be unusual for a commercial loan for example. So, if Libor is wrong then the interest rates on those tens of trillions (maybe hundreds of trillions) of other contracts are also wrong.

And we know that Barclay’s tried to manipulate that Libor price. Sometimes in order to try and make money on those tens (or hunreds) of trillions of contracts and sometimes just to make the bank itself look less risky in the Crash.

But here’s the thing. We don’t actually know whether they succeeded in changing the Libor price. For the top 15% and bottom 15% numbers from the different banks that are asked to provide prices are thrown away. If Barclay’s was submitting stupidly low numbers then they wouldn’t actually change the final prices.

Admittedly, we tried but we failed isn’t the greatest of defences. But for anyone to win a civil case against the bank they will have to prove that they succeeded.

A difficult thing to do.

Image:  Barclays Bank Chairman Bob Diamond who is to forgo his bonus for this year after the bank agreed to pay penalties of £290 million to settle investigations into the manipulation of the London interbank lending rate.

Posted: 28th, June 2012 | In: Money Comments (2) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink