Libor scandal Report

LIBOR SCANDAL
Written By- Ritam Agrawal

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Table of Contents
Abbreviation ..................................................................................................................................................... 4
Executive Summary: ........................................................................................................................................ 5
The LIBOR scandal: ........................................................................................................................................ 6
Introduction:.................................................................................................................................................... 6
What is LIBOR?.............................................................................................................................................. 6
The Scandal:-.................................................................................................................................................... 8
The LIBOR scandal Process: ........................................................................................................................ 11
Individuals:-................................................................................................................................................... 11
Brokers:.......................................................................................................................................................... 12
Broker’s role in interest rate market:-................................................................................................. 12
Broker’s role in the LIBOR scandal: ................................................................................................... 14
Senior executives: .......................................................................................................................................... 15
Organizational factors that affected LIBOR. ............................................................................................. 16
Banking factors: ..................................................................................................................................... 16
Regulators involvement:-....................................................................................................................... 18
Socio culture aspects: ............................................................................................................................. 19
Fines and penalties:................................................................................................................................ 21
Who suffered and who was benefited by the manipulation of the LIBOR?............................................. 22
Recommendations:......................................................................................................................................... 24
Maintaining values and ethics:..................................................................................................................... 25
Reforms that can be taken to ensure LIBORS safety in the future: ........................................................ 26
Conclusion: - ................................................................................................................................................... 27
References ....................................................................................................................................................... 28

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Table of content showing Graphs and Figures:
Figure 1 Showing LIBOR currencies and Length of Maturity (Brady, 2012) .............................................. 7
Figure 2 showing how LIBOR rates are set. (BBC News, 2017)..................................................................... 8
Figure 3 Showing the Timeline of the LIBOR scandal. (C. Yu, 2017). ........................................................ 10
Figure 4 Showing Causes of Banking Scandals, (Salz, A. (2013) .................................................................. 17
Figure 5 Showing some values and culture that were identified by Barclays, (Salz, A. (2013).................. 21
Graph 1 Showing variations of LIBOR rate post August 2007, (Publications.parliament.uk, 2009) ....... 18
Graph 2 shows groups which were affected by LIBOR manipulation. , (Institute, 2012).......................... 23

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Abbreviation
BBA British Bank Association
BBALIBOR British Bank Association LIBOR
CFTC Commodity Future Trade Commission
CFE Certified Fraud Examiners
DOJ Department of Justice
FHFA Federal Housing Finance Agency
FSMA Financial Service and Market Act
FSA Financial Service Authority
FXMM Foreign Exchange and Money Market Committee
IRS Interest Rate Sway
LPBAUG LIBOR Panel Banks and User Group
LIBOR London interbank offered rate
MNC Multinational Corporation
SEO Senior executive Office
SFO Serious Fraud Office
UBZ Union Bank of Switzerland-
U.K United Kingdom

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Executive Summary:
This report tries to examine and analyze the London Interbank Exchange Rate (LIBOR), which was found out
in 2012 after Barclays Bank acted as the whistle blower for the scandal. This scam was conducted due to the
unethical practices by top executives, traders and employees London Interbank offered rate (LIBOR) is the
largest financial scandal of all time. Chief executive of multinational bank quoted it as “This is the banking
industry tobacco moment” (The Economist, 2017). LIBOR manipulation was the result of unethical approach of
top management and traders who were motivated by recognition that misconduct behavior would be undetected
or unpunished. This paper tries to answer the following questions: -
• Individual and organizational factors that influenced the scandal
• Recommendations to prevent occurrence of similar scams in future
The scandal occurred due to misconduct by top executives of the banks with the motive of personal profits by
showing a better financial position than other banks. This led to the break of public trust upon the system and
amendments in the monitoring system. The data in this report comprises of analysis and interpretation of different
journal articles, newspaper article, papers and deriving of a relevant conclusion about this scam and ethical
practices that should be adopted and promoted by MNCs. This study highlights the importance of ethics.

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The LIBOR scandal:
Introduction:
LIBOR “London Interbank Offered Rate” is the rate at which large bank can borrow short term wholesale fund
from one another on unsecured basis in the interbank market. (Hou and Skeie, 2014).The LIBOR rates are used
in variety of money instruments, entering from retail loans to swap agreements. LIBOR was created to represent
a rate at which bank could borrow funds in the interbank market before 11:00 AM at same day. The LIBOR rates
are depended on honesty and truthfulness to a great extent. Here contributing bank truthfully submits the rate at
which the bank borrow on the particular day. However due to greed and negligence of control, traders of various
banks manipulated rates for their personal objective. (Hou and Skeie, 2014)
On June27, 2012 Barclays came into the picture by 360 million dollar settlement with U.S. Department of Justice
(DOJ) and CFTC after Barclays manipulated LIBOR in 2005-2009. After the investigation was made by the
authorities they came to know that at least fifteen other banks were included in it. On July, 2012 Martin Wheatley
(“Wheatley”) the U.K. treasury managing director of FSA served and reformed the LIBOR again and after some
months Wheatley released “The Wheatley Review” and established that “LIBOR” can be reformed. (Gov.uk,
2017)
What is LIBOR?
In late 1990’s London, England had flourishing money which were also developing monetary instruments known
as derivatives contracts and syndicated loans. Each derivatives contract consist their own provisions, regarding
the basic rates, as a result absence of uniformity of procedure for building up these rates, the BBA was asked to
benchmark a device that would act as a source of other derivates and related financial transaction. (Bbatrent,
2017)

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The BBA defines LIBOR as “The rate at which an individual contributor panel bank could borrow funds, were
it to do so by asking for and then accepting interbank after in reasonable market size, just prior to [11:00 A.M.]
London time” (Bbatrent, 2017). The BBA further specified that “the rate at which each bank submits must be
formed from the banks perceptions of its cost of unsecured fund in the London interbank market” and “must
represent rates at which bank would be offered funds in the London interbank market” (Bbatrent, 2017). The
selection of bank to serve and the guideline for the calculation for the LIBOR is done by the FXMM. The banks
are selected on the basis of {1} Market Activity {2} Reputation and expertise by FXMM .The reference panel
ranges from 6 to 18 banks, for each currency which are set up by British Bank Association (BBA) and advised
by the LIBOR Panel Banks And User Group (LPBAUG).
Figure 1 Showing LIBOR currencies and Length of Maturity (Brady, 2012)
Thomas Reuters acts as a LIBOR collecting agent. Every morning at approximately 11:00 AM, London Time
each business day the banker asks their LIBOR rate submission based on the following question. “At what rate
could you borrow funds, where you do so by asking for then accepting interbank offer in a reasonable market

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size just prior to 11.00AM?” Once collected the LIBOR uses “Trimmed mean” method to calculate the rate.
“Trimmed mean method is calculated by taking top 25% and bottom 25% of the submitted interest rate and then
taking the average of the middle 50%. For example:- For 30 days.18 banks submits rates for U.S. dollar, LIBOR
rate the top 4 and bottom 4 of the submitted interest rates and the average is taken from the middle 10
submissions. (Bbatrent, 2017)
Figure 2 showing how LIBOR rates are set. (BBC News, 2017)
LIBOR since the beginning 1986, has been the most crucial part of the financial market across the globe. It is
also one of the most derivative financial instruments.
The Scandal:-
Between the year 2005 and 2009 the manipulation and criticism reaction emerged in setting of LIBOR.
Specifically the interbank lending market was not working appropriately as bank were careful about loaning to

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each other as banks chances of risk were high but the LIBOR rate was not high to reflect these market changes.
(PIRANA, 2017) Moreover bank manager were requesting submittal of low rates which causes doubts and fear
that higher rate would go as a symbol of liquidity and financial weakness, due to this doubts BBA took a survey
of genuine data and the trust on the LIBOR rate (C. Yu, 2017). The survey resulted that individual contributing
to bank entities could lead to herd behavior, this behavior results bank to report rates higher than their
companions because of a fear of money distress (C. Yu, 2017).
Despite after such surveys and concerns BBA neglected to take any action against the system which results to
disclose the identities of the submitting banks. BBA in 2008 also said that the panels who have manipulated the
data will be blocked but failed to do so, so BBA was not able to recognize the reality of manipulation that was
going in the panel. (C. Yu, 2017).Therefore BBA optioned an extra U.S. dollar benchmark, to developed the
LIBOR panel and upgrade the governance and administration ,despite these opinions BBA could only upgrade
a little for LIBOR panel and administration quoting that LIBOR board includes biggest banks in London,
however BBA included one more bank that could contribute in the panel . (PIRANA, 2017) Foreign Exchange
and Money Market Committee (FX & MM) was in charge of advancement of BBALIBOR which will include
two subcommittees which comprises of experts from both the banks that is contributing bank and non-
contributing banks. (PIRANA, 2017) .BBA then observed errors and discrepancies between the rate that was
submitted and the actual market rate which results to hailed in the further investigations. (Bbatrent, 2017)
Barclays PLC on June 2013 admitted for misconduct and misinterpreting the rate. Many banks got investigated
for contributing in the LIBOR scandal. There were millions of dollar loss between 2005 till 2010 and more than
dozen banks got sued including Bank of America, JP Morgan, UBS, Citi group, and Royal Bank of Scotland.
Now the European Union is planning to move the control form U.K. to France to regain peoples trust. (RT
International, 2017) Below diagram shows the full timeline of LIBOR scandal.

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Figure 3 Showing the Timeline of the LIBOR scandal. (C. Yu, 2017).

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The LIBOR scandal Process:
LIBOR became benchmark and most broadly utilized for setting rate on IRS contract over 25years. LIBOR
covers rates with ten different currencies and fifteen different borrowing period known as “tenors” (Wheatley,
2012) .Because of the IRS contract being widely used in market and LIBOR becoming a critical part of the
international financial framework. LIBOR because of its transparent process was considered to be invulnerable,
in fact trimming outliners is considered it to be impractical to design specific rate. However scandal described it
to be conceivable and possible to nudge the LIBOR rate one way up or down for individual benefits. (Wheatley,
2012)
Conflict of Interest: - (McConnell, 2014)
In 2013 Mc Connell identified three conflict of interest rates in LIBOR fixing process.
Individual- Related to individuals for submitting rate.
Structural- Related to organization of process itself.
Bank Level- Related to contributing banks.
Individuals:-
Milton Freidman, an economist who had proposed in his Laissez faire theory said that economics including
financial market should have the capacity to redress themselves, since there is no rules and regulation. Milton
Freidman also argued that there is or no involvement of the government in the market, he further added that the
world keep running on individuals/people perusing their interest, and that the most noteworthy accomplishments
have not originated from government administrations. (Friedman, 2017). However formal administrative
structures, the financial frameworks they all are totally depended on trust and relationship. Development of
economy is the key function of the financial institutions. Individual in the market are those who not only look

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out for their own interest but also for the interest of others. In fact by devoting to interest of others individual’s
acts in self-interest and market where individuals work for their self-interest and becomes flawed. (PIRANA,
2017).The difficulty of submission rates by collaboration of LIBOR rises a question “Is it possible for an
individual to benefit from knowledge of further submission”. For example if the final LIBOR rates for specific
currency is influenced by the traders, then they could manipulate and adjust rates for their own benefits and for
this it is requires a plot between traders and submitters. (McConnell, 2013) and this exactly happened In the case
of the LIBOR. The LIBOR calculation is carried out through trimmed mean method, i.e. by averaging mid value
becomes extremely difficult to precise rate but not difficult to push a rate in a desired direction. Such actions
lead to unethical practices in the market.
Brokers:
Broker’s role in interest rate market:-
Broker’s played a vital role in the LIBOR scandal. ICAP a main interdealer represents “voice broker”. Voice
broker is a technique for communication between seller and buyers, for placing orders and surveying market,
where interdealer keeps regular touch via telephone with their clients. It plays a very significant role in the
development of financial framework. They act as an intermediaries to the clients by building liquidity in the
business sector. (McConnell, 2014).
Voice broking is an individual action that requires employee a deep understanding of the specific market as well
as major and minor players in the market. ICAP is a large broking firm with hundreds of employee working in a
multiple market, where voice broking is a complicated, high skilled and well paid job (plc, 2017).
Broking firms such as ICAP, Tullet-Predon and RP Martin were involved in the LIBOR scandal. These broking
firms basically runs on two types of brokers who dealt in “Derivative”, first one being IRSS and second who
deal with cash products like repo rates (McConnell, 2014). The brokers deal with the latest price in the market

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for instruments such as U.S. Dollars, LIBOR rate, these dealers often deal with the 1RS market and are on the
speed dial of the traders. Derivatives had to be prepared to give instant reply to their clients requesting them for
quotations and if accepted a trade is completed (McConnell, 2014). After the successful completion of the trade,
trade brokers are rewarded accordingly by seeing the customer satisfaction which has built interpersonal
relationship between clients. McConnell (2013) calls this relation as “small world” effect as this effect between
the broker and the client can be seen in the LIBOR scandal. An example from the “small world” which shows
the relationship between the broker and trader can be seen by the conversation below: (McConnell, 2014).
“Broker: can I pick ur brain?”
“Submitter: yeah”
“Broker: u see 3m jpy libor going anywhere between now and imm?”
“Submitter: looks fairly static to be honest, poss more pressure on upside, but not a lot.”
“Broker: oh[,] we hve a mutual friend who'd love to see it go down, no chance at all?”
“Submitter: haha [names trader] by chance.”
“Broker: shhh.”
“Submitter: hehehe, mine should remain flat, always suits me if anything to go lower as i reve funds.”
“Broker: gotcha, thanks, and, if u cud see ur way to a small drop there might be a steak in it for ya, haha.
Submitter: noted ;-).”
“Broker: 8-) [Smiling with glasses].”
Source – Conversation extracted from - (McConnell, 2013)

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Broker’s role in the LIBOR scandal:
As such brokers were not having any specific roles In LIBOR fixings. There are submitters in the board who has
to submit the honest rates that is currently going in the market. But the question rises here is on what basis the
submitters submit those rates? To submit their rates submitters must have deep understanding of the interest rates
and the currencies. These interest rates are provided by Bloomberg and Reuters. Sometimes brokers also see the
current market rate that has been traded before and then the final decision is taken by evaluating all of the above
process. (McConnell, 2014).
To encourage the clients submitters offer “market quotes” that are provided by the brokers and therefore brokers
also plays a vital role in the submission panel. (Cftc.gov, 2017). Investigation of ICAP found that one of the
broker who was influential in Japanese YEN LIBOR market run “LORD LOBOR” (McConnell, 2014).he email
“run through” on a daily basis to hundreds of traders and submitters that contains suggested LIBOR rates. The
“run through” was very helpful for investigators. Investigators here found the rates for two contributing banks
and then set the rate accordingly. In 2007-2008 it was found that between 70% to 90% submissions were same
as “run through” rates submitted by the brokers (McConnell, 2014). Brokers did that because of the commission
they get paid for the agreed rate, however brokers were feared of the participating illegally but some brokers
overcome the fear and participated in this illegal activity.

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Senior executives:
McConnell (2011) said that LIBOR process is totally dependent on the submissions of LIBOR rates with full
honesty to the submitters but this does not seems to be good for senior executives. Traders had citizen senior
executive involvement in the manipulation of the rates. A former Barclay’s employee claims that three Barclays
executive including Chief operating officer of its investment bank were involved in the scandal and they were
also aware of this (Croft, J. 2016).
According to Jay Marchant who was a trader and a Barclays banker after interview from the SFO named three
senior executives Mike Bagguley, Chief operating officer at Barclays, Harry Harrison a senior banker and Eric
Boimmernsath a former Head of fixed income currencies department, they were all aware of the practice that
was going on the system. (Croft, J. 2016).
Senior managers of Barclays were also involved in the misreporting. This was done with the desire to avoid
negative media comment. Misreporting was done to show good image standing in the market. Misreporting
happened between September2007 and March 2009 in Barclays when there was a period of financial crisis
(Vasudev, P.M. & Rodriguez Guerrero, D. 2014). There are also interventions between Bank of England and
Barclays to lower the borrowing rates during the credit crisis. The communication between two senior executives
were seen in which LIBOR submission was discovered. Lower rates were projected to show the Barclays strength
as a borrower in the financial framework. (Vasudev, P.M. & Rodriguez Guerrero, D. 2014).
Tom Hayes who was the Yen derivative was sentenced to fourteen years of imprisonment for price rigging
between 2006 and 2010. He did that because of the greed and money. Hayes got convicted for eight years in
“Conspiracy to defraud” to accomplish this he set up a network of specialist and dealers covering ten of the most
effective account organizations to show the cost of borrowing for interbank is in profit. (Rozenberg, 2017)
.Barclays chief executive Bob Diamond and chairman Marcus Agius were forced to resign after the LIBOR

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scandal with this new Barclays Chief Anthony Jekin to avoid future scandals insisted employees to sign “code
of conduct” (RT International, 2017).
Organizational factors that affected LIBOR.
Individuals are not the only one who was fully responsible for LIBOR scam. There are some organizational
factors like banking factors, Socio culture factors, reputational factors etc. Some external factors like culture,
society, pressure from workgroup market etc. are some key factors that affected the organizational changes and
affect the organizational misconduct too. Ethics and values are some key things that organization should keep in
mind while working in the entire environment. Here are factors that affect the organizational factors.
Banking factors:
As bank plays an important role in the economy. It is clear that large banks such as Barclays, bank of
England, UBS, RBS and many more were involved in the LIBOR scandal. In 2012 Barclays with regulators
were fined for 290 million pounds for manipulation of LIBOR it was because of unethical and greedy
behavior, but not only Barclays, RBS and UBS were also fined with huge amounts. (BBC News, 2017)
below Figure shows the possible causes of banking scandal.

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Figure 4 Showing Causes of Banking Scandals, (Salz, A. (2013)
Banks manipulations of LIBOR are seen through recorded telephonic conversation, emails, and messages
between the traders, managers and submitter. Bank are aslo important because it shows the credit wortiness
othe the bank and measures the market risk. Below the diagram shows how LIBOR rate is affected by the
banking enviroment. . We can see that post August 2007 the rate of sterling, Euro and US dollar declined
by 50-100 basis points as against 10-20 basis point before August 2007. It further saw an extraordinary rise
of 200 basis points after the lehman brother’s scandal in September 2008 (Publications.parliament.uk, 2009).
From this it can be interpreted that banks widely influence the working of each other.

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Graph 1 Showing variations of LIBOR rate post August 2007, (Publications.parliament.uk, 2009)
By seeing all the contributions by the banks it seems that bank should work together by maintain ethical
culture.
Regulators involvement:-
In the case of LIBOR scandal the involvement of regulators i.e. governing bodies such as BBA, Thomas Reuters,
Bank of England and senior executives of banks were involved. Based on inquires conducted by CFTS Barclays,
FSN Audit, the manipulations were already widespread in 2015-2016 but it was still unknown that since when
the regulation was going on. (Ft.com, 2017) In 1991, an Ex-trader at Barclays reported to his manager that the
rate of LIBOR was being manipulated. He noted that a junior trader his “naivety seemed to be humors to my
colleagues” (Financial Times, 2017)
Financial service authority of U.K confirmed that on June a telephonic conversation between a senior at Barclays
and senior at Bank of England during which the external perceptions of Barclays LIBOR submissions were

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discussed (Forbes, 2017). then in 2008 Barclays chief executive officer Bob Diamond said that “various levels
of acknowledgement but no action” with this he means that Bank of England and U.S Federal reserve were given
a proof provided by Barclays about the manipulation of interest rates with other banks also. (Washington Post,
2017).
BBA and its subsidiary LBBA LIABOR LTD was also involved in the scandal, moreover FSA ,banking
regulators and Financial Service and Market Act 2000 (FSMA) view the LIBOR fixing as a ”regulated activity”
and because of this it escaped everyone’s notice and leads to activity for risk management functions in bank
decline. (Gov.uk, 2017). As a result beside dealer realized that nobody was looking so dealer code of conduct
turned out to be more shameless after some time.
Socio culture aspects:
The significance of culture both good and bad was sometimes neglected over the years. Nearly around all the
organizations, institutions now have a good understanding of how culture, ethics are associated with shaping the
behavior of the organizations. Soon after the LIBOR scandal, the appointment of the new CEO of Barclays
Antony Jekins made some commitment to change the corporate culture that will start with “Transform
proagramme” launched in 2013. He said “There might be some who don’t feel they can fully buy into an
approach which to squarely links performance to the upholding of our values. My message to those people is
simple. Barclays is not the place for you. The rules have changes, you won’t feel comfortable at Barclays and to
frank, we won’t feel comfortable with you as a colleague.” Said Antony to staff. He has laid down some fine
core values, respect, integrity, service, excellence and stewardship. (Telegraph.co.uk, 2017) .But Barclays failed
as a cooperate culture with its staff relations with the involvement of top level management Barclays
manipulating the rate requested by the trader involves senior manager encouragement which leads to culture
bias. Someone described Bob Diamond as” smart, ambitious, driven, hugely successful” which leads to
overconfidence for him. With this attitude he tried to build the trust of people that was lost in the financial crisis

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and to regain this trust banks need to be a better citizen. Further Diamond described culture as “how people
behave when no one is watching” adding “culture truly helps define an organization.” After investigations he
achieved success, but diamond neglected the actions size that could have taken after the investigation of their
leads to sign of overconfidence. (Maria Cervellati, Piras and Scialanga, 2017)
Banks have to work on principal of reciprocating in which banks has to maintain relationship with its external
and internal partners. Things like collection of rates are very common in banking culture, because of the societies
and surroundings .everyone was involved in the scandal but no one took any further step which lead to the
unethical practice and misconduct behavior (Joshi, 2013). Below is the figure depicting some values and culture
that were identified by Barclays.

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Figure 5 Showing some values and culture that were identified by Barclays, (Salz, A. (2013)
Fines and penalties:
There were total of 9 billon dollar fined globally. In which U.K. Barclays paid 35 million dollar in July 2012. In
Dec. 2012 Swiss bank paid 1.5 Billon dollar. U.K. authorities in 2012 fined RBS of 612 Million dollar for rate
manipulation and in Dec 2013 Barclays, Detsche Bank, RBS and Socite Geerale combine ally fined total of 1.7
Billion Euros that is around 22 Billion Dollar by EU authorities. U.S. authorities fined Citigroup 425 Million
dollar and Dutch Rabobank settled for 1 Billion Dollar. Banks like Citi Group, JP Morgan Chase, Barclays,

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Royal bank of Scotland and UBS were found guilty against criminal charges for manipulating rates. This lead to
the resignation and imprisonment of many senior executives. CEO of Barclays, Bob diamond and Rabobank
CEO Piet Moerland resigned. More than a 100 brokers and traders were investigated. (McBride, 2016). This
scandal resulted to the shift of central authority that regulates the Libor from BBA to ICE Benchmark
Administration, and was given a new name as ICE Libor. This was done to protect the economy from the further
manipulations and scandals like this (Theice, 2017).
Who suffered and who was benefited by the manipulation of the LIBOR?
It is quite difficult to identify exactly who were the victims for the manipulations of the rate and the losses in the
financial market, but as far as research there were different banks and corporations who were paying floating
rate interest based on LIBOR lost when the LIBOR rate increased, whereas the banks who were paying fixed
interest rates lost floating rate and received less rate of interest (McConnell, 2013). According to the article
published by financial times there was an audit done by FHFA and concluded that two large U.S. housing
agencies Freddie Mac and Fannie Mae, failed in GFC and has incurred a loss of around 3 Billion US dollar
because of the LIBOR manipulation (Financial Times, 2017).
On the other hand the LIBOR scandal was done for the aim of some profit. Swap readers were also benefited
with this manipulation in order to earn incentives and rewards. According to the telephonic conversation with
dealers, the dealer was ready to pay anything or for manipulating the rate (Joshi, 2013). Senior managers did
manipulations in order to protect the reputation of the firm to hold the goodwill in the market, whereas traders
did that to benefit their own market positions. In an article of Bloomberg titled :Barclays takes a money market
beating” in this article that was raised after the observations was that the rate of submission of USD LIBOR was
high as compared to all other banks, at the same time Barclays also approached the bank of England for overnight
funds.so did others banks considered Barclays uncreditworthy? But overall the LIBOR manipulation was not the

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local event. Traders, brokers, senior managers, large banks around the world got manipulated. It was not just the
fault of one person the whole system was corrupted. . (McConnell, 2013). Below is the survey done by CFA
institute shows groups which were affected by LIBOR manipulation. (Institute, 2012)
Graph 2 shows groups which were affected by LIBOR manipulation. , (Institute, 2012)

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Recommendations:
It stays unclear that what is expected to change LIBOR and to gain the trust again. To regain the trust in the
benchmark, Wheatley in 2012 gave his some recommendations. The recommendations were given on the
following tasks: (Yeoh, 2016)
• The current framework should be reformed for setting and governing LIBOR.
• To set the authorization and sanctions to resolve LIOBOR abuse and
• Discover whether similar considerations apply as far as others price settling components in money market
and furnish temporary strategy recommendatory in that area.
Wheatley then reached some conclusions below:
• Rather than replacing the LIBORS benchmark we should get a clear case in favor of compressively
reforming them.
• The LIBOR submission should be explicitly used in the transactional data and
• The significant role played by the market participants should continue by oversighting LIBOR.
Wheatley also prescribed ten points plan to reform the LIBOR. (Yeoh, 2016)
According to Reuters they said that because of reforms LIBOR rate could be more volatile and high so that the
cost for borrowings will also increase for the customers. A money market analyst of JP Morgan, New York said
that “In general I think more banks translate into a higher benchmark rate because you includes banks that aren’t
as efficient as borrowers in the wholesale market and ten to pay higher rates” (Reuters, 2017) But overall U.K.
government agreed to accept the Wheatley reviews recommendations. To examine the cultural and ethics of the
financial market U.K. government also established a parliamentary panel. (Investors Hub, 2017).

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On July 2012 Sir Anthony Salz, board of Barclays commissioned did “Independent Review of Barclays business
practice” in that he wrote about how Barclays could regain its trust amongst the customer and be a leader again.
Anthony almost wrote thirty four recommendations that is summed up in five key points: (Salz, 2013)
• The monitoring system of Barclays should be set high and there must be transparency in the monitoring
system process.
• The Board should be upgraded for better performance.
• The staff should be high cultured and value driven.
• New set of values and culture should be set up.
• The framework of bank should be set high, should be risk cultured and have good control function.
Maintaining values and ethics:
It is a difficult task for banking industry to build an ethical behavior platform. Reynolds and Newell inquired
whether the behavior desired be delivered by increasing the focus or not and came to a conclusion that yes at
some extend they plays a very important role in the business. (Reynolds, 2014) Black and Anderson recognized
that the unethical conduct and inappropriate behavior is getting stopped by rules and regulations but at the same
time he realized that to make the changes banks themselves are responsible, therefore bank should focus on clear
functional aids and provide incentives for such conduct. (Black and Anderson, 2013) Conglianese and
Mendelson in 2012 supported this by saying that to emphasize the regulations and compliances reward and
incentives are the crucial part. (Coglianese and Mendelson, 2017)
LIBOR scandal at its core lies the dishonesty. Dishonesty is not only the criminal offence but is “culturally
defined as psychological construct” (Hardowar, 2017). Repairs that can be made to the LIBOR are to convert
LIBOR into a transaction based rate rather than by replacing it, by converting LIBOR from weighted average to
transaction based rate will be viewed as quick and low cost method. In 2008 Scott Peng, Citi group recommended

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a new NYBOR rate which was same as the LIBOR rate. This rate way constructed exclusively on NY banks cost
of funds. In June 2008 The New York Funding Rate (NYFR) came into existence which was also published by
ICAP. (Hou and Skeie, 2017)
Reforms that can be taken to ensure LIBORS safety in the future:
According to Bernake “structural problem” of Barclays is that it is a self-reveled obtaining rate that are theoretical
,so if Barclays is representative there are very little internal process security to guarantee that people cannot
influence it. Under CFTC settlement agreement Barclays recommended some reforms that could prevent future
manipulations but for that Barclays have to consider some points which are as below:
• To promote different methodologies and process for safety benchmark interest rates with honesty and
without the impact of internal and external conflict of interest.
• Giving preference to actual transactions like first preference should be given to Barclay’s rate and then
second made by the third party.
• By implementing various stickiness to outsiders and internal LIBOR submissions also to verify the
capabilities and qualifications of the individuals submitting the LIBOR rates, to make communications
secure firewall should be created.
The regulators like FSA, BBA, ICE and other regulatory bodies can impose of huge penalties,
imprisonments, law suits, sanctions, amendments to decrease unethical misconducts. If the organization is
bad with internal control system then they can hire experts like CFE, CPA to make sure that no misconduct
should happen in the future (Reed, 2014).

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Conclusion: -
Libor scandal played a great role in shaping the policies and regulations of the regulatory bodies in order to
protect the economy from facing such defamation. In order to safeguard our financial resources, it’s very
important to understand the factors that could lead to the start of it. LIBOR rate is a benchmark rate and a way
to calculate the health of financial sectors of our global countries. LIBOR rate proves to be a standardized rate
that was trusted by the public due to its roots being furnished since 1980s. This rate is calculated by way of
trimmed means and by taking into consideration just the middle 50% of submission rates. This is governed by
IBA and calculated by Thomas Reuters.
The LIBOR scandal caught heat due to the verification by Barclays bank in 2012 about the manipulation of rate
while submitting it. It was done due to reasons affecting reputation and profits. More than a dozen of banks came
to light about its involvement in this scandal. This not only hampered the growth of economy but also hindered
public trust. This scandal was being called the mother of scandals and getting a lot of media scrutiny.
The reasons lighting the emergence of this scandal is even macroeconomic. While Wheatley has suggested some
recommendations and that recommendations needs to be added in the LIBOR benchmark. Libor should be
reformed rather than breaking it. The better regulatory system should be incited to provide smooth flow and
helps to prevent the future manipulations and fraud. Moreover bank should base their submissions by analyzing
it by auditors and internal committee. There is no doubt that LIBOR scandal revealed widespread unethical
practice. It is also important for everyone to work ethically in the organization. The analysis therefore concludes
that the successful behavioral and cultural organization needs cooperation between industry and government
regulations so that it can work smoothly in any environment.

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