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Bank Rate Rigging Explained
1. Possible Explanations:
1. Increase in counterparty risk
• It Reduces the lending banks’ expected
payoffs from providing unsecured funds to
other banks and thus lowers their incentive
to transact with one another.
2. 2. Liquidity hoarding
• Banks have come to rely much less on
deposits as a source of funds and more on
short-term wholesale funding.
• It has become common for corporations to
turn to markets rather than banks for short-
term funding.
3. THE REGULATORS’ FINDINGS
• The investigation has been carried out jointly
by the Financial Services Authority (FSA) in the
UK and the American Commodity Futures
Trading Commission (CFTC).
• On 27th June 2012, both regulators published
the findings of a long joint investigation into
LIBOR rate setting.
4. • 173 requests for US dollar LIBOR submissions were made.
Jan 05-May
• 11 requests based on communications from other bank
09 traders
• 58 requests for EURIBOR submissions
Sep 05- May
• 20 requests based on communications from other bank
09 traders
• 26 requests for yen LIBOR submissions
Aug 06- June
09
5. • Trader A -“submits our settings each day, we influence our
22 March 06
settings based on the fixings we all have”.
• Trader B – Telephone conversation
5 Feb 2008
• Euro Derivatives Traders sent emails to Manager C
indicating that they had spoken to Barclays’ Submitter
July 2008 about the desk’s reset positions
6. The Fine:
The FSA fined Barclays £59.5 million in
accordance with section 206 of the Financial
Services and Markets Act 2000. This is the
largest fine ever imposed by the FSA.
