30 years: Capital markets & investment banking
Peter explains how some traders submitting LIBOR rates were colluding to manipulate rates to suit their positions and generate huge profits.
Peter explains how some traders submitting LIBOR rates were colluding to manipulate rates to suit their positions and generate huge profits.
2 mins 34 secs
Banks submitting rates for LIBOR colluded to suit their own positions, leading to regulatory reforms.
Key learning objectives:
Outline the initial reforms in the UK and Europe
Learn why banks manipulated LIBOR
Heavy scrutiny of LIBOR revealed that submitters at the major banks colluded to manipulate rates to suit their positions to generate huge profits. On days when banks had large amounts of floating-rate loans re-fixing, traders would try to get others to submit high quotes to drive up LIBOR and raise loan rates. If large swap positions where banks were paying a floating rate were rolling over, traders tried to manipulate LIBOR lower. The scale of collusion was serious enough that even discarding high/low rates could not ensure a fair setting. Regulators were quick to reform LIBOR.
Wheatley Review reforms (UK):
Euribor reforms:
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