The LIBOR Fix

Satyajit Das on the furor surrounding manipulation of money market rates that contained all the meanings of the word “fix” and more

Depending on context, the word “fix” can mean “set” or “determine,” “manipulate” or “rig,” as well as “repair” or “correct.” “In a fix” means to be in difficulty. In colloquial use, a “fix” is a dose of an addictive substance that is habitually consumed.

In a fix…

In June 2012, UK and American authorities fined UK’s Barclays Bank £290 million (US$450 million) for manipulating key money market benchmark rates, such as the London Interbank Offered Rate (LIBOR) and Euro Interbank Offered Rate (EuroIBOR). The settlement follows a lengthy investigation into fixing money market rates by regulators, underway for at least 2 years.

In 2011, Swiss bank UBS disclosed that as part of the investigation it had received demands for information on “whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate LIBOR rates at certain times.” The Wall Street Journal in May 2008 published a study suggesting that banks might have  understated borrowing costs. An academic study published the same year found that LIBOR had remained low whilst bank risk was increasing. Individual banks’ rate quotes remained very close, surprising given  divergences in perceived credit quality.

The exact circumstances remained unclear until the UK Financial Services Authority (FSA) released detailed evidence indicating that Barclays had manipulated rates. Barclays’ Chief Executive Officer (CEO) Robert E. Diamond Jr. and Chief Operating Officer Jerry del Missier were forced to resign. Barclays’ Chairman Marcus Agius resigned but agreed to remain temporarily to find a new CEO.

An unknown number of traders and interbank brokers have been dismissed, suspended, or put on leave by their employers as a consequence of the investigations. Institutions affected allegedly include Deutsche Bank, JPMorgan Chase, Royal Bank of Scotland, UBS, and Citigroup.

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The LIBOR Fix
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