Article posted: 4th July 2012
The row about the attempted rigging of LIBOR (London Interbank Offered Rate) that broke out at the end of last month probably has a long way to run. There has already been a discovery of similar banking ‘creativity’ in Japan involving TIBOR, the Tokyo equivalent, by two major investment banks, Citigroup and UBS. The Financial Services Authority (FSA) says that it ‘continues to pursue a number of other significant cross-border investigations in this area’. Press reports suggest that there are around 20 major banks under investigation. Barclays has grabbed the headlines so far because it co-operated with the authorities from an early stage, winning itself a 30% discount on the FSA penalty.
One point that has eluded much of the coverage is that, although the news currently focuses on a UK bank and LIBOR, sterling interest rates were not involved. LIBOR is not just one interest rate, but a matrix of 150 rates, covering ten major currencies and 15 time periods, from overnight to 12 months. The FSA says Barclays’ misconduct related to the setting of US dollar LIBOR and EURIBOR, which is the euro-only European Banking Federation equivalent of LIBOR. So those stories about mortgages and other loans in the UK being mispriced appear wide of the mark …. at least for now.
Web reference: www.fsa.gov.uk/library/communication/pr/2012/070.shtml