What is Libor & the rate fixing scandal all about?

On Wed 6th February, Royal Bank of Scotland (RBS) became the third bank to pay fines in the Libor scandal… but what is Libor & the rate fixing scandal all about?

Libor ( “London interbank offered rate” ) is one of the most important rates in the world of finance. Libor is the benchmark interest rate banks use worldwide to borrow from each other and therefore a key component of a bank’s cost of funds in the interbank market.
Libor is widely used as a reference rate for many financial instruments in both financial markets & commercial fields. For example, many financial institutions, mortgage lenders and credit card agencies set their own rates for mortgages, loans and credit card rates relative to the Libor rate. The range of global financial transactions Libor is used to set is worth an estimated $300 trillion.

The Libor rate fixing scandal relates to Barclays, and fifteen other global financial institutions (Source: WSJ http://blogs.wsj.com/deals/2012/07/09/who-else-is-under-investigation-for-libor-manipulation/), being under investigation for allegedly manipulating the Libor rate between 2005 and 2009.

Investigations are still ongoing and as of Wed 6th Feb, RBS will pay penalties of $612 million, Switzerland’s UBS AG agreed in December 2012 to pay penalties of $1.5 billion, and Britain’s Barclays Plc has paid $453 million. Regulators have warned there is more to come in the global investigation.

Check out this link for more information on “Libor – what is it and why does it matter?

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Thank you and good trading.

Stuart Young
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