LIBOR is supposed to be a trustful financial yardstick
measuring the cost banks incur when they borrow from each other. Set each day,
LIBOR determines the price of loans and derivatives contracts worth millions of
Global GDP. The flaw in the system is that banks can estimates their own libor
rates. Although these estimates are to
be calculated by a team that is ringfenced from other parts of the bank the
probe show that it is influenced by the Barclays trader.
The traders involved
were placing bets on interest rates derivatives. These were large enough the
total market is $555 trillion in 2011 that small prices changes can mean big
profits. Indeed other message revealed that for each basis point (.01%) that
LIBOR was moved those involved could net
about couple millions of dollars
1 comment:
For Barclays this is beyond embarrassing. The emails FSA tracked 257 messages asking for LIBOR and its yen and euro equivalent to be altered make painful reading. That the probing involved FBI is a reputational disaster in itself. To its very slight credit, Barclays hasnot blamed this on its rogue traders : its boss Bob Diamond and seniors has taken as the failure of the bank as a whole. Bank has been fined $93 million biggest ever doled out. This number is still pale in front of the CFTC imposed fine. Though to my surprise this day the share price increased .
Other banks has a reason to fret as there are news of 12 banks more been involved in LIBOR investigation around the globe.
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