Thursday, 28 June 2012

Libor - This is far bigger than Bob Diamond alone.

Today British politicians are falling over each other in a blame game of whom is responsible for the Libor (London interbank offered rate) fiasco. But surely they themselves cant completely escape blame either, as someone asked is this the banks 'Leveson' moment, did politicians and bankers become too close? - was it a case of you scratch my back and I'll scratch yours (or was that F1 I'm thinking about). Should we now have  a 'Leveson' type inquiry into this whole mess?

After all questions about Libor have been around for some time.

Back in May 2008, The Wall Street Journal cast doubt on the Libor rate - The following is an extract from The Wall Street Journal Article -  Study Casts Doubt on Key Rate.

Major banks are contributing to the erratic behavior of a crucial global lending benchmark, a Wall Street Journal analysis shows.

The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be. Those five banks are members of a 16-bank panel that reports rates used to calculate Libor in dollars.

And an entry was added to the Libor Wikipedia page about the above study in September 2008, as well as the following:

To further bring this case to light, The Wall Street Journal released another article dealing with this matter titled "U.S. Probe Presents Dilemma over Libor" on Friday, March 18, 2011. The article stated that regulators are focusing on Bank of America Corp., Citi-group Inc. and UBS AG. Making a case would be very difficult because determining the Libor rate does not occur on an open exchange. According to people familiar with the situation, subpoenas have been issued to the three banks.

In response to the study released by the WSJ, the British Bankers' Association announced that Libor continues to be reliable even in times of financial crisis. According to the British Bankers' Association, other proxies for financial health, such as the default-credit-insurance market, are not necessarily more sound than Libor at times of financial crisis, though they are more widely used in Latin America, especially the Ecuadorian and Bolivian markets.

Libor serves as a benchmark for around $350 trillion of financial instruments around the world. Libor is set daily by Thomson Reuters in a process overseen by the British Bankers' Association.

A recent article in The Wall Street Journal - Interest Rate Probe Escalates says:

In its filing, the U.S. Commodity Futures Trading Commission (CFTC) alleged that a senior manager at Barclays warned the bankers' association in a phone call in 2008 that the bank hadn't been submitting accurate Libor rates, while claiming it was not the worst offender on the panel.

"We're clean, but we're dirty-clean, rather than clean-clean," the CFTC said that the Barclays employee stated. It added that the bankers' association representative responded: "No one's clean-clean."

A spokesman for the association said Wednesday that the group wasn't aware of the events described by the CFTC and would "conduct a full inquiry into this."

As you can see and read elsewhere, this is far bigger than Bod Diamond alone.

See also: Zero Hedge - British Bankers Association Is "Shocked"

To view  WSJ LIBOR: Historical Data

1 comment:

Anonymous said...

I don't understand why Diamond, Agius, etc aren't required to resign immediately and without contractual compensation (you're not supposed to benefit from bad behaviour) following the FSA verdict (and US equivalent).

That should also be followed by a substantial period of disqualification from directorships, and by a *proper* criminal investigation (fraud and/or conspiracy come to mind).

Nice to see Milibland has finally woken up, but we don't need another Leveson-style public enquiry to delay matters and ultimately change nothing. The "self regulatory" bodies have had their inquiry, published their findings and their verdict, and the inevitable and IMMEDIATE conclusion is that heads must roll and that a criminal investigation is required.

There are plenty of comparisons to be drawn here. On Radio 4 earlier in the week, one commentator was saying that if casinos had been run like this, they'd have been shut down. Many others are pointing out the contrast between the treatment of the riotres who helped themselves to stuff that was already on the streets (jail), vs the likes of Barclays (lies and outright theft going unpunished).