A Project Report

on

“LIBOR Scandal”

by

Mr. Hitarth P. Dhamsania

Roll No: P42127

Subject
Financial Commodities and Derivatives

Submitted to
R. Ramaseshan

Institute of Rural Management, Anand

388 001
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 CONTENTS
Contents 2
1. What is LIBOR? 3
2. How LIBOR is calculated? 4
3. How LIBOR SCAM unfolded? 5
3.1 Manipulation of Lending Rates 9
3.2 Lowering of LIBOR 9
4. Future of LIBOR 10
References 11

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 1. What is LIBOR?
Throughout the decade of the 1980s, a brand-new category of financial products, including
currency options, interest rate swaps, and forward rate agreements, began trading on the
market for the first time. However, the standard charge could not be applied since it was
unavailable. As a result, in 1984, the British Bankers Association (BBA) and its member
banks worked together to establish a benchmark and define a uniform underlying rate. As a
result, the BBA came up with the concept of BBAIRS (BBA Interest Rate Settlement
Rates), which would subsequently evolve into the BBA LIBOR. In the beginning, LIBOR
was made available for the British pound, the Japanese yen, and the United States dollar.
The British Bankers' Association (BBA) was a trade association that was made up of over
200 member banks. These member banks collectively offered the full spectrum of banking
and financial services and constituted the largest international banking centre in the world.
They managed approximately 150 million accounts and contributed £50 billion annually to
the economy of the United Kingdom. The banking and financial services industries in the
United Kingdom are another area of focus for the British Bankers' Association (BBA). By
the year 2012, the LIBOR was computed for a total of 10 different currencies, with 15
different maturities specified for each of those currencies (ranging from overnight to 12
months). As a result, each business day featured a total of 150 different rates.
The London Interbank Offered Rate, sometimes known as LIBOR, is a global benchmark
that is utilised regularly in the process of computing short-term interest rates. It refers to the
annual percentage rate of interest at which financial institutions trading on the London
market are willing to lend one another cash in a certain currency for a particular amount of
time. During the course of its history, the LIBOR has evolved into one of the benchmark
rates that is used in the world the most frequently. In addition to this, LIBOR is used
extensively as a proxy for determining the level of stress in credit markets all over the
world. The rise in the LIBOR rate is a sign that banks are asking higher fees to compensate
for a higher risk perception. As a result, it is able to provide valuable insights on the state of
the financial system, which enables market participants and regulators to evaluate the
overall stability of the financial system.

The London Interbank Offered Rate (LIBOR) was conceived as a means of accurately
reflecting the cost of unsecured market-based lending for the world's most important
financial institutions. The London Interbank Offered Rate (LIBOR) was intended to be a
representation of the daily interest rates at which large banks borrowed money from one

3
 another. The authority to determine the current base rate was delegated to the nation's
central banks. LIBOR was extensively used as a reference rate for a variety of consumer
and corporate lending products including mortgages, credit cards, student loans, and other
types of loans. In addition, a sizeable portion of over-the-counter (OTC) and foreign
exchange-traded derivative contracts made use of LIBOR for their respective settlements.
According to the Bank for International Settlements (BIS), the value of Over the Counter
interest rate and foreign currency derivatives was around $567 trillion at the end of the year
2011. This information is based on estimates. In addition, the London Interbank Offered
Rate (LIBOR) is used as a reference point for about ten trillion dollars' worth of corporate
and municipal bonds, variable rate notes, mortgages, and other consumer loans. Over forty-
five percent of prime adjustable-rate mortgages and more than seventy percent of all
subprime mortgages were classified as "Libor Plus" mortgages. According to estimates
provided by the Commodities Futures Trading Commission (CFTC) of the United States,
the value of financial instruments that are linked to LIBOR exceeds $800 trillion.
2. How LIBOR is calculated?

The LIBOR submissions for each currency were each evaluated by their own separate group
of bank experts. There may be anywhere from six to eighteen banks that offer their rates,
but it all depends on the currency. The number of institutions contributing rates to the U.S.
dollar LIBOR climbed from 16 in 2008 to 18, including Barclays, which contributed a rate.

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Each of the panel members responsible for the submission of interest rates of a particular
currency was required to send in their information to Thomson Reuters between the hours
of 11:00 and 11:10 local time in London. The corporation that participated in the "trimmed
mean" computation procedure and hence controlled the LIBOR rate setting process for the
BBA. The BBA outlined the process that must be followed in order to perform such a
computation. After that, the organisation devised a LIBOR rate suitable for each term.
Before arriving at an average for the remaining 10 submissions, the "trimmed mean" for the
LIBOR in U.S. dollars first eliminates the four rates that were reported as being the highest
and the four rates that were reported as being the lowest. After then, Thomson sent the
predicted LIBOR rates as well as all 18 submissions to a range of news and financial
information services throughout the world by the time it was noon in London. The
technique for calculating the Euro Interbank Offered Rate, often known as EURIBOR,
which is a gauge of short-term interest rates in the Eurozone, follows the same line of
reasoning. The European Banking Federation is the organisation in charge of monitoring the
procedure for determining interest rates. The top and bottom 15 percentiles of the data that
were submitted to create EURIBOR are deleted, and the remaining values are averaged for a
certain time period. EURIBOR is comprised of these numbers.

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3. How LIBOR SCAM Unfolded?
During the years 2007 and 2008, Barclays' observed that the member banks were submitting
low interest rates for consideration. These rates were such as to benefits the traders
associated with the panel banks to aid them to make the profit and failing to serve the open
market since they were not genuine cost of borrowing. These workers indicated in some of
these interactions that all panel banks, including Barclays, were providing rates that were
abnormally low.
In May 2008, the New York Federal Reserve issued a paper that questioned the LIBOR rate-
setting system. As panel banks reported the rate at which they "could borrow funds" rather
than the actual rate, willful misreporting was unavoidable. Research conducted out by the
NY Fed also showed that panel banks were also obligated to publish the information
regarding transaction size and interbank activity. BoE recommended BBA for its
examination of the rate-setting process in order to maintain accuracy and credibility. In
response to queries regarding the accuracy of LIBOR, the BBA released a consultation
document in late June that listed several themes for debate that may lead to an improvement
in accuracy. After examining comments from banks etc and, the BBA voted to preserve its
current process, stating that LIBOR submissions should be "derived from each bank's
perspective of its cost of funds on the interbank market."
In 2007 Northern Rock Bank collapsed into the bust when the crisis began in the U.K.
North Rock was being aided by BoE to deal with the liquidity crisis it was facing. Panic
situation caused the traffic at the banks to withdraw their monies. At the beginning of 2008,
Northern Rock was nationalised. Later partial nationalisation of Royal Bank of Scotland and
Lloyds Banking Group took occurred to avoid further breakdown. In August 2007, Barclays
tapped the Bank of England's emergency loan facility twice, borrowing roughly £1.6 billion
on the second occasion. Barclays stated that a technical issue in its operations compelled
them to use the contingency facility since they discovered a deficit of capital too late to
borrow on the open market. In spite of the fact that utilisation of the facility was an
exceptionally unusual occurrence, when coupled with the persistent fear that pervaded the
market, it raised concerns regarding the liquidity and stability of Barclays. After some time
had passed, Bloomberg released an article which suggested that Barclays may have suffered
liquidity concerns as a result of its utilisation of the BoE facility as well as its relatively high
LIBOR submissions in pounds, euros, and United States dollars. The acts of Barclays and
its Barclays Capital securities branch were called into question in the article. These actions

6
forced the company's competitors to charge it a higher rate of interest on the money market.
A number of traders, under the impression that Barclays was experiencing difficulties,
deliberatively brought the Libor rate down. Because interest rates were low, it gave the
impression that Barclays was strong and able to weather the storm of the credit crisis. On
occasion, dealers would work in concert with workers of competing banks to raise the
interest rate in order to increase their profits. In November of 2007, the stock price of
Barclays fell to levels that were the lowest they had been in three years due to worries
regarding the bank's exposure to the credit crunch.
As a result of multiple criminal settlements that were made by Barclays Bank in June 2012,
it was revealed that member banks had engaged in massive fraud and conspiracy in respect
to rate submissions, which led to the scandal. The first major financial institution to publicly
acknowledge wrongdoing and reach a settlement with the relevant authorities was Barclays.
The investigations of Barclay's began falling under the purview of the CFTC in June of
2012. In later stages, the Department of Justice (DOJ) of the United States became engaged.
Barclays admitted that it was in violation of the law in two different ways: (1) From 2005 to
2009, the bank engaged in interest rate manipulation by reporting inaccurate lending rates to
the benefit of traders, assisting them in either generating profits or reducing losses during
derivative trading. This was done in order to manipulate the rate of interest. (2) Over the
years 2007-2009, financial institutions presented exchange rates that were significantly
lower than those proposed by the panel members for the currency with which they were
working.
The violations consisted of publishing rates that were acknowledged as not being the most
accurate estimates of the bank's real borrowing costs. This was done to avoid evading
market scrutiny and was caused by derivative traders who altered the rates. In addition,
Barclays lacked effective risk management and control mechanisms to prevent the false
submissions; the FSA highlighted the fact that when LIBOR problems were brought to the
attention of Barclays' compliance group on multiple occasions in 2008, the group did
nothing to resolve the issues. The FSA came to the conclusion that the company did not
meet the requirements of the standards because it did not carry out its business operations
with the required level of care and attention. The Financial Services Authority (FSA) levied
a record-breaking penalties of £59 million ($93 million) against Barclays. However, the
Financial Services Authority (FSA) recognised the bank for its remarkable cooperation
throughout the investigation. As a result of the firm's prompt settlement, the initial penalty
of £85 million was lowered by 30%.

7
According to the findings of the investigation conducted by the CFTC, which uncovered
illegal behaviour and activities comparable to those outlined by the FSA, Barclays admitted
that it had violated the Commodity Exchange Act by altering and fraudulently
misrepresenting its rate submissions. This was determined by the investigation. Throughout
its investigation, the CFTC received "significant assistance" from the company, which led to
the imposition of a penalty in the amount of $200 million by the commission. During the
course of the inquiry, Barclay's cooperated with the agencies that were conducting it and
agreed to comply with the regulations that were being imposed by the regulatory bodies. In
addition to that, the functions of internal control were modernised. Because Barclay's
cooperated and disclosed relevant information, the company was spared criminal
prosecution.
Because the money market desk is in charge of interacting directly with the traders, these
locations functioned as the junction in determining the actual cost of borrowing money. In
addition, the Barclay's Money Market Desk was given the job of determining the cost of
borrowing money in a variety of currencies and for varying amounts of time. As a result of
this, Thomson was given the responsibility of receiving LIBOR rates from the Desk. In
addition to this, the Desk was responsible for managing the bank's liquidity requirements. It
did this by acting as a clearinghouse for any other departments inside the corporation that
needed funds. In addition to this, the Desk would go out and acquire liquid assets from the
market in order to preserve liquidity and gain profits on the discrepancies in bids. It was in
the best position to evaluate the firm's cost of borrowing since it managed the firm's
liquidity requirements, even if it was in a position of surplus liquidity and not borrowing on
a specific day. This was because it had been managing the firm's liquidity requirements.The
information obtained from the timeline is presented below for Barclay's for the LIBOR

8
Variance, along with its shifts in relation to base (LIBOR FIXED).

9
TIMELINE of LIBOR SCANDAL
2005
As early as 2005, there was evidence that Barclays had attempted to manipulate the USD
Libor and Euribor rates at the request of its derivatives traders and other banks. Euribor is
the eurozone's counterpart of the Libor rate.
Inappropriate behaviour was rampant and involved employees in New York, London, and
Tokyo in addition to outside traders.
According to a study published by the Financial Services Authority (FSA), derivatives
traders at Barclays made a total of 257 requests to fix Libor and Euribor rates between
January 2005 and June 2009.
With reference to the three-month dollar Libor, a trader from Barclays said to another trader
from another bank the following: "duuuude... what's up with people 34.5 3m fix... tellhim to
get it up!"
2007
Concerns over liquidity drew public attention to Libor at the beginning of the financial
crisis in September 2007, when Northern Rock went bankrupt. This was the beginning of
the crisis.
In order to present a more favourable image of the bank's credit quality and its capacity to
raise funds, Barclays engaged in manipulating the Libor submissions. Concerns that it had
difficulty borrowing money from the markets may be diverted by making a lesser
submission. Due to the fact that Barclays' Libor submissions were towards the upper end of
the range of values provided by contributing banks, the media began to speculate about the
actual risk and credit profile of the financial institution. According to the FSA assessment,
senior treasury management told submitters to lower Libor in order to avoid unwanted
publicity and said that Barclays should not "stick its head above the parapet." As early as the
28th of August, the New York Federal Reserve stated that it had received mass-distribution
emails that suggested that bank submissions for the Libor were being set at an excessively
low rate. According to the Financial Services Authority (FSA), on November 28 a senior
submitter at Barclays wrote in an internal email that "Libors are not representing the
genuine cost of money." A compliance officer from Barclays got in touch with the British
Bankers' Association (BBA), which is a lobbying group for the UK banking industry, and
the Financial Services Authority in December.
"problematic conduct" on the part of other banks, with the Commodities Futures Trading
Commission of the United States indicating that it appeared as though these banks were

10
understating their Libor filings (CFTC). According to the FSA report, a compliance officer
from Barclays contacted the FSA on December 6 to express concern about the Libor rates
being submitted by other banks. However, the compliance officer did not inform the FSA
that Barclays' own submissions were incorrect; instead, the compliance officer stated that
Barclays' submissions were "within a reasonable range." The Financial Services Authority
(FSA) stated that the same compliance officer then told Barclays senior management that he
told the FSA that "we have consistently been the highest(or one of the two highest) rate
provider in recent weeks, but we're justifiably reluctant to go higher given our recent media
experience," and that the FSA "agreed that the approach we've been adopting seems sensible
in the circumstances." In

The Commodity Futures Trading Commission (CFTC) reported at the beginning of

December that an employee from Barclays who was responsible for submitting the bank's
dollar Libor rates had contacted it to complain that the bank was not establishing "honest"
rates.

The worker communicated his worries to his supervisor through email. He wrote, "My issue
is that we (both Barclays and the contributor bangle panel) are being seen to be contributing
manifestly bogus rates."

Because of this, we are engaging in dishonest behavior, and there is a possibility that this
will damage our reputation both in the market and with the regulators. Could we talk about
this as soon as possible, please? Concerns were raised with the Financial Services Authority
by a compliance officer from Barclays on December 6 over the levels at which other banks
were fixing their US Libor rates. This was done when a submitter brought his concern to the
attention of compliance over the misreporting of the rate. Compliance reported to the FSA
that "we have consistently been the highest (or one of the two highest) rate provider in
recent weeks; yet, given our previous experience with media, we are reasonably reluctant to
go higher." In addition to this, he added that the FSA "agreed that the approach we've been
taking appears sensible under the circumstances, therefore I advise we keep things as they
are for the time being." On the 17th of December, an employee of Barclays reported to the
New York Federal Reserve throughout the course of a phone call that the Libor rate was
being fixed at a level that was unreasonably low.

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2008
On April 11, an official from the New York Fed questioned a Barclays employee in great
detail about the scope of the issues with the reporting of the Libor rate. The person working
for Barclays It was explained that Barclays was underreporting their rate in order to avoid
the stigma that comes with being an outlier with respect to its Libor submissions, in
comparison to the submissions of other participating banks. The Wall Street Journal released
an article on April 16 that called into question the reliability of the Libor benchmark.
According to the CFTC, around this time, a senior Barclays treasury manager alerted the
BBA in a phone call that Barclays had not been accurately reporting. Nonetheless, he
defended the bank by claiming that it was not the worst culprit in the situation, adding,
"We're clean, but we're dirty-clean, rather than clean-clean." The spokesperson from the
BBA gave a response that stated, "No one's clean-clean." Following the publication of the
article in the Wall Street Journal, the BBA allegedly sent emails to Barclays expressing
worry regarding the veracity of the firm's Libor filings, as stated by the Financial Services
Authority (FSA). If the rumours spread by the media are genuine, the BBA has stated that
this behaviour is not acceptable. On

Barclays had been understating its Libor submissions, according to comments made by a
manager on April 17 to the Financial Services Authority (FSA): "W "We did this the year
before, got our headshot off, and then put it back down again. Is it possible that, uh, the
Libors have been underestimated, and if so, are we to blame for contributing to the problem
as a group? One might even say that we are... You might say that we are clean in theory, but
I wouldn't say that we are perfectly spotless all the time. Huh." Late in the month of April,
officials from the New York Federal Reserve Bank, which is responsible for supervising the
banks in New York, convened a meeting to discuss potential solutions to the issues with
Libor, and they informed other US agencies of their findings. The New York Federal
Reserve provided a comprehensive briefing to senior officials from the United States
Treasury on May 6th, after which they delivered a subsequent report regarding issues with
Libor. The officials from the New York Fed also met with officials from the BBA to discuss
their concerns and gain a deeper understanding of the issues that exist inside the Libor-
setting process. According to the Financial Services Authority (FSA), on May 29 Barclays
agreed internally to tell the media that the bank had always quoted accurate and fair Libors

12
and had acted "in defiance of the market" rather than submitting incorrect rates. This was in
response to allegations that Barclays had submitted incorrect rates. Early in the month of
June, Tim Geithner, who was serving as the head of the New York Fed at the time, sent a
list of suggestions to the governor of the Bank of England, Sir Mervyn King, in an effort to
address the credibility issue with Libor.
One of these was the requirement "to eliminate the incentive to misreport" by shielding the
identities of the financial institutions that reported the highest and lowest interest rates. A
few days before, Sir Mervyn and Mr. Geithner, who is now the Secretary of the Treasury in
the United States, had a conversation about the issue at a gathering of central bankers. Sir
Mervyn acknowledged to Mr. Geithner that he had forwarded the recommendations from
the New York Fed on to the BBA shortly afterward. This confirmation came shortly after
Mr. Geithner's initial inquiry.
In the spring, the British Bankers' Association (BBA) begins preparations for a review of
Libor, which will later be referred to by Paul Tucker, deputy governor of the Bank of
England, as "very significant" because of the deteriorating credibility of Libor. The Bank of
England desired that the LIBOR rate be reflective of actual rates rather than subjective
submissions. Mr. Tucker called the financial institutions and emphasised that senior
personnel, not the younger persons who are often sent to sit on the BBA committee, should
conduct the evaluation. On
The British Bankers' Association (BBA) released a consultation paper on June 10 asking for
feedback on potential changes to Libor. According to what was stated, "The BBA offers to
investigate several options for avoiding the stigma while retaining transparency." Barclays
made contributions to the discussion but was careful not to discuss its own rate proposals.
The British Business Association (BBA) published a feedback statement on their
consultation paper on August 5th, with the conclusion that the current mechanism for
contributions would be maintained. The Bank of England had a contact with a senior
official from Barclays in September, shortly after the collapse of Lehman Brothers. During
this interaction, the Bank of England brought up concerns regarding Barclays' liquidity
position as well as its relatively high Libor submissions. The plans to essentially partially
nationalise Royal Bank of Scotland (RBS), Lloyds TSB, and HBOS are announced by the
government of the United Kingdom on October 13. The plans call for the government to
inject billions of pounds worth of taxpayer money into three large banks. One week later, on
the 21st and 22nd of October, Paul Tucker and a senior government official by the name of
Sir Jeremy Heywood discussed the topic of why the Libor in the UK was not lowering as

13
quickly as it was in the US in spite of the actions taken by the government. Sir Jeremy was
also curious about the reason behind Barclays' exceptionally high borrowing costs.
According to what he writes in an email, there is "a lot of conjecture in the market regarding
what they are up to." Mr. Tucker later suggested in his evidence to the Treasury Select
Committee that there was widespread fear at the time that Barclays was "next in line" for
emergency government assistance. Emails demonstrate that he kept in touch with Bob
Diamond on a regular basis. The Libor rate is referred to as "total garbage" in a telephone
conversation that takes place on October 24 between an employee of Barclays and an
official of the New York Fed.
On October 29th, Paul Tucker and Bob Diamond, who was serving as the head of the
investment bank at Barclays at the time, have a phone conversation. According to the
summary of the conversation that Mr. Diamond forwarded to his coworkers the next day,
Mr. Tucker stated that senior Whitehall officials wanted to know why Barclays was "usually
at the upper end of Libor pricing." Mr. Tucker is quoted as saying that the interest rates "did
not always need to be the case that we appeared as high as we have recently." This is
according to the chief executive officer of Barclays. Mr. Tucker stated in a later interview
that this created the "false picture" of their chat and that he did not push Barclays to alter its
LIBOR submissions, despite what the earlier statement suggested. As a result of this
conversation with the Bank of England, Barclays asked Libor submitters to lower the rate so
that it would be "inside the pack." On

The British Banking Association (BBA) published a draught statement on how Libor rates
need to be set on November 17 and demanded that banks have audits of their rate
submission systems as part of their compliance obligations. The final paper was scheduled
to be distributed on July 16, 2009.
2009
On November 2, the British Bankers' Association (BBA) disseminated guidelines for all
contributing banks on how to calculate Libor rates consistently. Barclays did not make any
adjustments to its systems in order to take the BBA rules into consideration. Barclays began
work in December to enhance its systems and controls, but the company rejected the
directions provided by the BBA. Until the year 2009, the bank did not have a traditional
Chinese wall separating the derivatives team from the submitters.
2010

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In the month of June, Barclays sent out an email to all of the submitters in which it outlined
a series of "basic rules." These "fundamental rules" required the submitters, for instance, to
report to compliance any attempts to influence Libor submissions either internally or
externally. Moreover, communication with outside traders "that could be regarded as an
attempt to agree on or alter Libor levels" was barred.
2011
Late in 2011, the Royal Bank of Scotland terminated the employment of four individuals
who were suspected of playing roles in the Libor-fixing scandal.
2012
On June 27th, Barclays came clean and recognized its wrongdoing. A fine of £59.5 million
was levied by the FSA of the UK. Barclays had to pay a total of approximately £290 million
in fines, which were levied by the United States Department of Justice and the Commodities
Futures Trading Commission (CFTC). The respective fines were £102 million and £128
million.
On June 29th, the chief executive of the bank, Bob Diamond, stated that he would be
attending a meeting of the Commons Treasury Select Committee and that the bank will
cooperate with the authorities. On the other hand, he was adamant that he would not quit his
job. On the same day, Bank of England governor Sir Mervyn King called for a "culture
transformation" and added that the notion that "my word is my Libor" may be used as a
basis for future calculations of Libor is "now dead." He stated that putting the Vickers
banking reforms into effect was the most crucial first step, but he ruled out conducting an
investigation into the banks in the style of Leveson. On

Marcus Agius, the chairman of Barclays, resigned from his position on July 2 and
simultaneously tendered his resignation as the chairman of the BBA. In a letter to the staff,
Mr. Diamond promised that he would "get to the bottom" of whatever had taken place. The
Chairman of the Treasury Select Committee, Andrew Tyrie, will preside over the
parliamentary investigation that Prime Minister David Cameron has promised will be
conducted into the banking industry. Mr. Cameron stated that the review ought to make
certain that the United Kingdom possessed "the toughest and most transparent laws of any
significant financial sector." Bob Diamond, the chief executive officer of Barclays, tendered
his resignation on July 3, saying that the external pressure on the bank posed a danger of
"destroying the franchise." Next in line was Jerry del Missier, chief operating officer at
Barclays, who resigned on the same day as his predecessor. On July 4, Mr. Diamond was

15
questioned for three hours by members of the Treasury Committee over the incident. During
the course of the questioning, he referred to the behavior of those responsible as
"reprehensible" and stated that it had caused him to become physically ill. After then, the
Committee leveled the accusation against him of providing evidence that did not meet the
standards it expected. The credit rating agency Moody's changed the rating outlook for
Barclays from stable to negative on July 5th. The Serious Fraud Office (SFO) opened a
criminal inquiry on July 6 into possible manipulation of the LIBOR rate. In his testimony
before the Treasury on July 9, the Deputy Governor of the Bank of England, Paul Tucker,
insisted that he had not exerted any pressure on Barclays to reduce its filings and that the
government had not requested him to do so either. On July 16, the chief operational officer
of Barclays, Jerry del Missier, disclosed to members of parliament that Diamond had given
him instructions to reduce the bank's Libor submissions. He said that he thought the Bank of
England was the only institution that had asked Barclays to decrease them.
Ben Bernanke, chairman of the Federal Reserve in the United States, testified before a
Senate committee on July 17 that the LIBOR system was "structurally defective" and that
he still did not have full trust in the system. He added that he did not have full confidence in
the system. Prior to this, the governor of the Bank of England, Sir Mervyn King, revealed to
the Treasury Committee that UK authorities had been concerned about senior management
at Barclays, even before the recent Libor controversy came to light. Sir Mervyn asserted
that Barclays had sailed "too close to the wind" on numerous occasions. On

On July 31, Deutsche Bank announced that a "small number" of employees were implicated
in the controversy involving the fixing of the Libor rate. On the other hand, it was stated
that an internal investigation had exonerated senior management of involvement. The
Financial Stability Authority (FSA) released its preliminary findings on what needs to be
done to overhaul the system that determines the Libor rate on August 10th. Martin
Wheatley, the managing director of the FSA, stated that there is a "need" to "restore"
people's trust in Libor and that the current structure is no longer "sustainable." The
announcement that seven banks, including Barclays, HSBC, and RBS, will be subjected to
legal investigation in the United States was made on August 16th. Citigroup, Deutsche
Bank, JPMorgan, and UBS were the other financial institutions that were served subpoenas
by the attorneys general of New York and Connecticut respectively. The report that the
Treasury Committee had been working on on the LIBOR rate-fixing issue was finally made
public on August 18th. The actions of bank executives were described as "disgraceful" by

16
the members of parliament. They sought improvements such as increased sanctions for
companies that failed to cooperate with regulators, an investigation of gaps in criminal
legislation, and a significantly more robust governance framework at the Bank of England.
The committee stated that the testimony of former Barclays head Bob Diamond was
"extremely selective," which was another criticism leveled against it by the committee. In
response to the question, he stated that he had "answered every question that was posed to
me accurately, candidly, and based on facts that was available to me." The British Bankers'
Association (BBA), the organisation that is responsible for determining the Libor rate,
announced on September 25 that it would be willing to accept the loss of its function. It
made this comment in advance of the Financial Services Authority's (FSA) final report on
how to change LIBOR, which was scheduled to be published on September 28. The FSA
announced on the 28th of September that the BBA would no longer be responsible for the
administration of Libor. In its stead, a data provider (an organization such as Bloomberg or
Reuters) or a licensed exchange would take on this responsibility. The research also stated
that the LIBOR system was flawed and proposed that it undergo a thorough makeover. As
part of this revision, the report recommended that people who attempt to manipulate the
system be subject to criminal prosecution. In addition, the regulatory body proposed that
computations of Libor be based on the actual rates that were being applied, rather than the
estimations that are now being provided by banks.
The Serious Fraud Office in the United Kingdom said on the 11th of December that it has
detained three men in connection with its ongoing investigations into Libor. On

On the 19th of December, authorities in the United States, the United Kingdom, and
Switzerland penalized the Swiss bank UBS a total of $1.5 billion (or £940 million) for
attempting to manipulate Libor. It has reached an agreement to pay a total of $1.2 billion in
fines to the United States Department of Justice and the Commodities Futures Trading
Commission, as well as 160 million pounds to the United Kingdom's Financial Services
Authority and 59 million Swiss francs to the Swiss Financial Market Supervisory Authority.
2013
Robert Peston, the business editor for the BBC, reveals on the 10th of January that the
Royal Bank of Scotland (RBS) is in discussions with authorities in the United Kingdom and
the United States on the amount of fines to resolve the Libor probe. However, he cautions
that the departure of a senior executive may be required as part of a settlement agreement.
One week later, on January 17, the newly appointed CEO of Barclays, Antony Jenkins,

17
issued an order mandating that all employees either sign a new code of conduct or resign
from their positions with the company in an effort to prevent future scandals similar to the
one involving the manipulation of the Libor rate. The plea of 104 top employees of Barclays
for anonymity while testifying in a court case was denied on January 25 by a judge.
Guardian Care Homes claimed that the bank had misrepresented an interest rate hedging
instrument connected to Libor that it had purchased. On the 31st of January, Deutsche
Bank informs its investors that the company may be sued in relation to the manipulation of
Libor, in addition to other scandals that have occurred recently. Because of this, the bank
stated that it would be putting aside one billion euros to cover any prospective legal action.
On February 2, the Chancellor of the Exchequer, George Osborne, stated that any fines
imposed on the bank should be funded by bankers themselves rather than taxpayers. This
statement was made in the midst of rumors that RBS was close to settling the Libor scandal.
In response to the increased regulation of benchmarks, ICE Benchmark Administration Ltd
(IBA) was founded in 2013 as a company that administers benchmarks. IBA's mission, in its
capacity as an authorized benchmark administrator, is to restore credibility, trust, and
integrity to benchmarks by combining robust regulatory and governance frameworks with
market-leading validation techniques and an in-house technology solution. This will bring
benchmarks back into line with their original intent. IBA was chosen to take over the
administration of the London Interbank Offered Rate by an independent body called the
Hogg Tendering Advisory Committee in July 2013. This committee was established by the
government of the United Kingdom (LIBOR).

2014
After receiving authorization from the Financial Conduct Authority, BBA LIBOR handed
over the management of LIBOR to IBA on February 1, 2014, and the transition was
successfully completed on that day (FCA).
IBA was designated as the new administrator for ISDAFIX in April 2014, following an
intensive selection process overseen by the International Swaps and Derivatives Association
(ISDA). This appointment became effective on August 1, 2014.
IBA has been hard at work to improve both the governance and methodology of LIBOR and
ISDAFIX.
3.1 Manipulation of Lending Rates

3.1 The Art of Manipulating Interest Rates

18
The investigation found that derivative traders, primarily based in New York and London,
routinely asked that the Desk submit a specific rate or adjust its submitted rates either higher
or lower in an effort to influence the rate at which LIBOR was set, primarily for the one-
and three-month maturities, from at least the middle of 2005 through the fall of 2007 and
thereafter into 2009. This practise continued into 2009. The derivative traders at Barclays
were engaging in unethical behaviour in an effort to improve both their individual trading
positions and the profits generated by their own trading books and desks. The regulators
never attempted to estimate the potential gains or losses that traders would avoid, nor did
they provide any evidence that trader pay would be affected.

The Desk was being swayed by derivative traders, who wanted them to submit LIBOR rates
that varied by only a few points so that they could maximise their profits. Changing the
submission did not necessarily guarantee that the LIBOR rate that was actually set would be
changed, but that was the objective, and it could be achieved either by having the
manipulated Barclays rate thrown out as an outlier, which would have allowed another
bank's rate that would have been thrown out to be included, or by including the manipulated
Barclays rate in the "trimmed mean" calculation. Either way, the goal was to change the
LIBOR rate that was actually set. The genuine LIBOR rate would be wrong by one-tenth of
one basis point if the amended Barclays submission caused one of the other 10 rates to be
one basis point off from the true rate. This is because there were ten businesses involved in
the "trimmed mean" calculation.

3.2 A Decrease in the LIBOR

In order to manage the market's perception of its financial viability, Barclays submitted rates
to Thomson that it knew to be lower than its assumed cost of borrowing. The goal was to
avoid submitting rates that were higher than those submitted by peer firms, as this would
have indicated a higher borrowing cost and potentially restricted access to vital liquidity.
The routine modification was performed somewhere in the range of 20-50 basis points. The
submissions that were submitted by Barclays were more in line with the anticipated rates of
the other panel banks, and at the same time, they were established in such a way that the
rates did not constitute a "outlier" in comparison to those of the other panel banks. Because
of this, we were able to guarantee that the rate submission from Barclays would not be the
one with the highest rate and that it would not be rejected during the rate-setting process.

19
 These higher rates occupied the position in the calculation, which pushed the average over
the regular fixed rate. This occurred because the averages were determined after the outliers
had been eliminated by using percentiles to determine currency exchange rates.The
investigation determined that from at least mid-2005 through the fall of 2007 and thereafter
into 2009, derivative traders, primarily based in New York and London, routinely asked that
the Desk submit a specific rate or adjust its submitted rates either higher or lower in an
effort to influence the rate at which LIBOR was set, primarily for the one- and three-month
maturities. The derivative traders at Barclays were attempting to gain an unfair advantage
for their personal trading positions and the earnings of their own trading books and desks.
The regulators did never estimate the anticipated gains or losses saved by traders, nor did
they present proof that trader pay was impacted.

4. Future of LIBOR
Alternative types of finance and benchmarking techniques started to evolve as the trust over
LIBOR was reducing. Many countries were even trying to phase out the LIBOR. As we
saw, LIBOR panel banks were frequently required to give rate quotes based on trader
judgement rather than actual transactions. Such circumstances rendered LIBOR open to
manipulation. Over the last decade, the panel banks have paid out billions of dollars in
fraud-related settlements to regulators and private plaintiffs.

In 2012, Financial Conduct Authority (FCA-UK), issued a report for seeking in significant
improvements to LIBOR. This decision marked the phase of phasing out LIBOR. The
International Organization of Securities Commissions (IOSCO) issued rules for financial
benchmarks in 2013 to increase the quality and integrity of benchmarks by ensuring that
they are based on transactions between unrelated parties in healthy markets. The Financial
Stability Board accepted the IOSCO principles in 2014 and suggested modifications to
enhance LIBOR and the establishment of risk-free rates that might serve as LIBOR
substitutes. In the same year, the Federal Reserve Board and the Federal Reserve Bank of
New York (FRBNY) created the Alternative Reference Rates Committee (ARRC) to lead
these efforts in the United States. The FCA declared in 2017 that it will no longer require or
encourage banks to submit LIBOR rates beyond 2021, thereby beginning the countdown to
LIBOR's demise. The procedure would neither be quick nor simple.

20
In 2022, final regulation published by the Board of Governors of the Federal Reserve
defined the benchmarks that would replace LIBOR. The base rate of the new benchmark
will be linked to all of the financial instruments. LIBOR will cease to exist on June 30, 2023
making it an important milestone in the history of U.S. financial system. This new
benchmark is known as SOFR (Secured Overnight Financing Rate).

Barclays
The research conducted by Barclays uncovered two distinct methods of manipulating the
LIBOR. The first set of requests concerned the manipulation of rates for the advantage of
derivatives dealers. The second scheme entailed providing phoney interest rates amid the
global financial crisis in order to shield Barclays's good name.
1.
Barclays derivatives traders attempted to manipulate LIBOR between the years 2005 and
2009 by requesting that rate submitters submit rates that would "benefit the traders' trading
positions" rather than rates that conformed to the LIBOR definition. This request was made
in an effort to manipulate LIBOR. At least seventy percent of the requests for submitting
bogus rates that were made by Barclays traders between January 3, 2006 and August 6,
2007 were satisfied by the submitters. In addition, Barclays participated in the manipulation
of LIBOR by sending requests to other banks and complying with those requests.
Although concerns have been raised about Barclays' internal manipulation of LIBOR rates,
the interbank collaboration poses a greater threat. This is because the likelihood of
successfully manipulating LIBOR improves when doing so "as part of a coordinated effort."
In addition, former employees of Barclays were responsible for at least twelve of the
requests to submit erroneous prices. Overall, traders at Barclays worked along with traders
from other financial institutions to influence LIBOR prices on "days on which Derivatives
Dealers stood to benefit."
Barclays' traders were able to gain from the manipulation in at least one way, namely, a
reduction in "their losses, to the prejudice of counterparties," despite the fact that the impact
of Barclays' manipulation is still unclear.

2.
During the height of the financial crisis, Barclays engaged in rate-rigging in an effort to
"Protect its Reputation."

21
Another attempt to manipulate LIBOR was made by Barclays, this time by providing
"dishonestly low estimates."
during the financial crisis in 2008, as well as in the years preceding up to it. of bank
borrowing costs Some players in the market believe that LIBOR submissions are indicative
of a company's level of financial health because LIBOR represents the cost at which banks
are able to borrow funds. As a result, a higher number of submissions may be an indicator
that the bank is suffering "liquidity concerns." Between August 2007 and January 2009,
Barclays provided low LIBOR forecasts in an effort to allay concerns regarding the
company's overall financial stability. In addition, as a response to the unfavourable press
that was received, the management of Barclays instructed the submitters to provide
estimates that were in the top 25% of the range but were not so high as to "bring attention to
the bank." During this time, some staff at Barclays attempted to notify the British Banking
Association and the Financial Services Authority that banks were submitting dishonestly
low interest rates. In addition, it appears that several regulators were aware of the LIBOR
manipulation and did nothing to stop it. On the 29th of October in 2008, a manager from
Barclays spoke with Paul Tucker, an executive at the Bank of England ("BOE"), and
Barclays managers subsequently took the chat as an instruction from the BOE to "reduce
Barclays' LIBOR submissions."

In addition, Timothy Geithner, who was serving as president of the New York Federal
Reserve at the time, got in touch with the BOE in June 2008 to voice his worries about the
dependability of LIBOR and to propose his ideas for improving " the rate-setting process."
Barclays was given a total penalties of £290 million after it was revealed by US and UK
regulators that the company had modified or "fixed" its rate filings. The infraction occurred
in June of the previous year. Fines from the US Department of Justice (DoJ) and the US
Commodities Futures Trading Commission made up the remainder of the total amount after
the UK regulator's penalty of £59.5 million had been deducted (CFTC). Since then,
Barclays has disclosed that Jerrydel Missier, the bank's chief operations officer, was the
most senior member of staff to issue the order to rig rates. During a phone call that
Diamond had received from Paul Tucker, the deputy governor of the Bank, during which
Tucker said that he had "received calls from a number of senior figures within Whitehall to
question why Barclays was always towards the top end of the Libor pricing," the bank made
public a note written by Diamond that detailed the call.

22
Diamond subsequently related this conversation to del Messier, who construed it as a lower
rate command. As a result, del Messier communicated a direction to rate submitters to the
effect that the rate should be lowered. Diamond, on the other hand, claims that he did not
believe it to be an instruction and that he had no idea what was going on until the FSA
published its findings in June. He also stated that he was unaware of what was being done.

UBS
UBS received the FSA‟s largest ever fine of £160 million in December but this was just
part of the £940 million it had to pay out to the Do and CTFC and the Swiss Financial
Market Supervisory Authority,
The FSA found UBS traders routinely made requests to those responsible for submitting
Libor rates to change the rates in order to make a profit.
UBS also permitted traders to make submissions to the Libor panel.
UBS traders collaborated with brokers to influence Japanese Yen Libor submissions and
paid the brokers corrupt brokerage payments as a thank-you. It identified at least 2,000
documented requests for inappropriate Libor contributions but it cannot judge the number of
requests made that weren’t written down.
UBS traders openly discussed Libor manipulation in internal open chat forums and in group
emails. Sergio Ermotti, the chief executive officer of UBS, stated that the company was
sorry for this "unethical behaviour" and that "no amount of profit is more important than the
reputation of this institution."
A reference to the Royal Bank of Scotland
The overall amount of the fine levied on the Royal Bank of Scotland is £390 million, of
which the Financial Services Authority is responsible for imposing an 87.5 million pound
portion. The remainder consists of fines from the Department of Justice and the CFTC. RBS
has been deemed lacking in a significant number of the same areas as UBS. It permitted
traders to make Libor submissions that benefited themselves, while at the same time it
produced Libor submissions that benefited the bank's investment arm. Also, it participated
in Libor trading, which contributed to an increase in the profit and loss accounts of its
money market trading. In addition to the widespread misbehaviour, RBS lied to the
regulator and said that it had implemented adequate safeguards to prevent manipulation of
the Libor rate, despite the fact that it had not. In point of fact, certain aspects of the Libor
scandal weren't addressed until March of 2012. It is interesting that RBS chairman Philip
Hamilton noted a need to "fix the culture of the banking industry" before he addressed RBS'

23
own failings. RBS group chief executive Stephen Hester stated that the bank's commitment
to change was "absolute."

What actions did the regulating bodies take?

In addition to continuing their investigation into the remaining 16 financial institutions that
are believed to have been engaged in the LIBOR fraud and fining three of the major actors
in the LIBOR rigging affair, the regulators issued fines.
On September 28, 2012, Martin Wheatley, who is in charge of the regulator, presented a ten-
point plan to radically change the way that Libor works. Regulations, a reform of the
submission procedure, new rules for contributing banks, making rate rigging a criminal
offence, depriving the BBA of its function in computing Libor rates and replacing it with a
new organisation were all part of the reforms that were implemented.
In the end, the Review came to the conclusion that LIBOR should be changed rather than
replaced.
Wheatley also desired to reduce the number of Libor rates it calculates from 150 to just 20,
as well as increase the number of banks that are required to submit rates.
After the Wheatley reforms, the British Bankers' Association (BBA) made an announcement
in November that they would be launching a consultation paper.
Throughout the early months of 2013, a phased-in implementation strategy for simplifying
Libor was advocated.
The Wheatley Review [The Wheatley]
Wheatley published the evaluation on September 28, 2012, in which he outlined his
proposals. This was done despite the fact that it was still unclear exactly what was required
to reform LIBOR and restore trust in the benchmark.
1. The Control of the LIBOR Rate
Secondly, the Study suggested that "administering LIBOR" and LIBOR submissions be
regulated under the Financial Services and Market Act 2000 ("FSMA") Order 2001. This is
due to the fact that the incentives to tamper with LIBOR submissions result in numerous
instances of misbehaviour.
Regulation of LIBOR will include both the filing of LIBOR rates as well as their calculation
and publishing. According to the Review, regulation of LIBOR is required in order to
provide the FSA with the authority to sanction infringing enterprises. This would serve to
provide "a powerful" incentive for compliance, which is now absent. In contrast to the
LIBOR framework that is currently in place, the FSA will designate submission and

24
administration managers as "controlled functions" in order to encourage individual
accountability and guarantee that only "fit and proper" individuals will be allowed to fill
management positions in these areas. In addition, the FSA will have the authority to issue
fines to both institutions and people who break LIBOR standards. This will contribute to an
increase in confidence in the LIBOR system, as transgressions "will not be left undetected
or unpunished."

2. A LIBOR initiative titled "Strengthening Institutions and Governance"

The Review identified three flaws in the current LIBOR framework, which are as follows:
(1) Inadequate "independence of governance institutions;"
(2) Low openness and accountability; and
(3) Insufficient oversight.
Importantly, the Study came to the conclusion that the BBA need to end its participation in
the LIBOR process because the tight links it has with contributor banks impede its capacity
to credibly oversee the benchmark.
The BBA has announced that it will immediately begin the process of selecting a private
firm to administer LIBOR. This decision was made after the BBA agreed to transfer its
"responsibility for LIBOR" in accordance with the suggestion made by the Review. The
new administrator of LIBOR should have interests that are separate from those of the donor
banks. In particular, the administrator should come up with unique suggestions for practises
of oversight and for procedures encouraging transparency and accountability, with a
particular emphasis on access to LIBOR that is "fair and non-discriminatory."
In addition, the administrator is obligated to investigate and analyse all LIBOR submissions
for signs of manipulation, and to report any submissions that appear to be inconsistent to an
independent oversight group referred to as the "Committee."
In addition to this, the administrator will be accountable for defining criteria for institutions
that are interested in participating on panels as well as the procedure for submitting LIBOR
data. In addition, the revamped structure necessitates the formation of an independent
oversight committee in order to re-establish the submission process's credibility and
guarantee that non-panel banks will be adequately represented in the oversight process. The
Committee is tasked with defining LIBOR, reviewing submissions, and developing a code
of conduct that will apply to all parties involved in the LIBOR setting process. In contrast to

25
the FXMM, the Committee will boost transparency by publishing the names of its members,
as well as "declarations of conflicts of interest" and minutes from meetings.
The method of submitting data to LIBOR will be formalised, and internal processes to avoid
manipulation of LIBOR will be established, thanks to the creation of a code of behaviour by
the Committee and the administrator. In addition, the code will mandate that institutions
employing it keep "accurate and accessible records of transactions in inter-bank deposits"
and that contributing banks keep "accurate and accessible records of transactions in inter-
bank deposits." This is to increase the credibility of submissions.
3. Immediate Changes to the LIBOR System
Third, the Review proposed implementing immediate modifications to LIBOR, some of
which include postponing the publishing of rates, decreasing the number of indices that are
published, and increasing the size of the panels. Because LIBOR "continues to function,"
these immediate remedies serve as short-term fixes until the new administrator and UK
regulators can execute the long-term recommendations of the Review for "complete"
LIBOR reform.
In spite of the fact that the BBA released the LIBOR every day with the intention of
promoting openness and accountability, in practise it encouraged financial institutions to
provide erroneous interest rate data. In order to lessen the impact of the banks' capacity to
foresee how submissions will affect the LIBOR rate, the Review suggested that publication
of submissions be immediately postponed for "at least 3 months." This recommendation
was made in order to comply with the recommendation that publication of submissions be
immediately delayed. In addition, due to the fact that all submissions must, if possible, be
"supportedby transaction data," a number of the 150 LIBOR indices will no longer be made
public. The Review suggested that during the course of the following year, the administrator
should cut the total number of indices published down to twenty. Moreover, the publication
of indexes that lacked transaction data should be discontinued. In addition, the assessment
underlined that keeping relatively large panels helps to improve the general "accuracy and
trustworthiness" of LIBOR. This is due to the fact that large panels provide more
information.
Increase the "representativeness" of the LIBOR rate while simultaneously minimising the
influence that any one bank can have on the rate. It is vital for banks to participate in the
LIBOR panels in order to avoid the "ultimate failure" of the LIBOR system, which would
have significant repercussions for financial institutions and markets.

26
 What kind of effects does LIBOR have on the average person?
The interest rates at which banks borrow money have a direct bearing on the prices they
charge their customers for loans and mortgages. When there is an increase in expenses for
the banks, the prices that the customers pay also go up. Because of this, one may claim that
any manipulation of the rates at which interbank loans are made will have an effect on
customers. According to Ray Boulger, who works for the mortgage lender John Charcol,
there are also approximately 250,000 borrowers who have mortgages that are directly tied to
Libor. However, the majority of these mortgages were likely obtained by buy-to-let, sub-
prime, and commercial borrowers. According to him, considering that this particular sort of
mortgage is typically connected to the three monthly Libor rates, it is highly likely that it
was impacted. But, before the financial crisis, interest rates were only adjusted very
marginally and not on a daily basis. If they had been changed more frequently, it would
have been clear to consumers. During the financial crisis, Barclays lowered interest rates
artificially in order to make itself look more creditworthy; hence, any influence at that time
would have really been advantageous to mortgage borrowers.
It is likely that institutional investors who deposited money in Libor-linked instruments
could have lost out, which would have an impact on savers who had money invested in a
pension fund, for example. Nonetheless, mortgage borrowers did profit from the change.
The problem is that it will be impossible to determine the exact amount of damage that was
caused by the conduct of the banks, which might result in a legal nightmare for anyone who
attempts to file a claim.
Why do the revelations regarding Libor matter?
To manipulate something that is so vital to the financial services business is, to put it
bluntly, a new low. And to make matters even worse, this is not the only scandal that the
banks are involved in – four major high street banks are involved in the mis-spelling of
interest rate protection products to small and medium-sized businesses, and let's not forget
about the enormous payment protection insurance misspelling issue. Moreover, the issue of
miss-selling interest rate protection products to small and medium sized businesses has been
brought to light.

Losses due to Frauds (Damage to Financial Markets and Public Trust)

Reuters was the organization responsible for disseminating the benchmark interest rate on the
instruction of the British Bankers Association from the years 2003 until 2012. Martin Wheatley,
former CEO of the Financial Conduct Authority (FCA), conducted an independent review about the

27
scandal and recommended some reforms. Based on this, commencing in 2014, the entire LIBOR was
placed under the vigilant watch of the Intercontinental Exchange Group (ICE), which guarantees that
there is no rate manipulation. There was a prevalent presumption, due to the fact that this was a
transaction between institutions, that the rates that were presented or the forecasts of rates that were
supplied were reliable and that they were done so in good faith. There was also no reason to believe
that banks may have been working together at any moment in time to provide inaccurate projections.
This is because there was no evidence to support such a hypothesis.

The London Interbank Offered Rate (LIBOR) was susceptible to being subtly manipulated, as the
inputs were taken from the traders so as to benefit their financial position by either understating or
overstating the rates. It resulted in value losses that amount to billions of dollars. All of the traders and
financial organizations that took part in the conspiracy and provided the incorrect interest rate
estimates were eventually punished. Such consequences led to the governance being handed over to
the administration that is in charge of the ICE benchmark.

The LIBOR controversy primarily resulted in a wide range of civil lawsuits, and in order to make
certain that another incident of this kind of manipulation does not occur in the future, Financial
Conduct Authority (FCA) decided to make it a criminal offense. The FCA's authority was expanded
so that it now includes the ability to draft rules governing the participation of banks in the procedure
by which LIBOR is determined. There were sixteen different banks represented on the group, and the
Serious Fraud Office has decided to launch an investigation into those institutions in relation to the
alleged fraudulent activity that has taken place.

In the year 2012, the Federal Deposit Insurance Corporation launched a lawsuit on behalf of 38 banks
that had suffered monetary losses as a result of the rates rigging that began in 2008. These banks were
entitled to compensation for losses incurred on investments in interest-rate derivatives. As of the
month of May in 2015, the total worldwide fines imposed as a consequence of manipulating the rate
totalled to 9 billion USD.

Both the United States and the United Kingdom formulated a diverse range of claims over the past
years, when the scandal unfolded. The allegations include a violation of the competition laws,
racketeering, breaching laws, significant damages, breaching contracts, torts, and criminal
responsibility for fraud, all of which regulate the free practice of business and commerce. The doubt
was also raised over the rate setting process as a number of legal loopholes were existing and because
no banks have ever claimed that the Libor rate was reliable as it was.

28
Major lawsuits and settlement of claims that are to be settled by the banks were estimated to be
around $176.3 billion.

Aftermath Effect

Various cases were impacted, and the authorities in each of these cases responded to the institutions in
their own unique ways. During the period under investigation, investigations into manipulation of the
London Interbank Offered Rate (Libor) discovered manipulation of the Tokyo Interbank Offered Rate
(Tibor) and the Euro Interbank offered Rate (Euribor).

At the level of the European Union, the manipulation of Libor and Euribor was considered an
example of anti-competitive behavior. This behavior is characterized by banks creating alliances in
order to accomplish generally agreed upon anti-competitive goals. It was interpreted as an attempt to
swindle the market in the United Kingdom. However, the authorities were hampered because there
were not enough rules in place to deal with such manipulations. The manipulations were against the
law in the United States because they had an unfair impact on the commodities market in that country.

As a form of punishment for the participating banks, the pertinent authorities in each of the
jurisdictions that were involved assessed monetary penalties. Although there have not yet been any
successful criminal prosecutions, some individuals have been arrested in the United Kingdom and
may be incriminated in the future for their claimed parts in manipulating Libor. This is despite the fact
that there have not yet been any successful criminal prosecutions. The authorities in the United
Kingdom issued penalties to financial institutions on the grounds that the institutions had violated
market behaviour principles. On the other hand, in the United States, the fines were levied as a
consequence of settlements that were reached between the financial institutions and the regulatory
authorities. Later it was revealed that the Peter Johnson (LIBOR )and Colin Birmingham
(EURIBOR), who were the whistleblower’s in this scandals, were sent to the jail in UK.

29
Conclusion

The regulating bodies concluded that the transition from LIBOR rates would not be easy as huge
worth of financial instruments are still linked to it. Alternative benchmarking (shown above) were
considered as to avoid loopholes that were discovered during the LIBOR scandal

Alternative types of finance and benchmarking techniques started to evolve as the trust over LIBOR
was reducing. Many countries were even trying to phase out the LIBOR. As we saw, LIBOR panel
banks were frequently required to give rate quotes based on trader judgement rather than actual
transactions. Such circumstances rendered LIBOR open to manipulation. Over the last decade, the
panel banks have paid out billions of dollars in fraud-related settlements to regulators and private
plaintiffs.

30
In 2012, Financial Conduct Authority (FCA-UK), issued a report for seeking in significant
improvements to LIBOR. This decision marked the phase of phasing out LIBOR. The International
Organization of Securities Commissions (IOSCO) issued rules for financial benchmarks in 2013 to
increase the quality and integrity of benchmarks by ensuring that they are based on transactions
between unrelated parties in healthy markets. The Financial Stability Board accepted the IOSCO
principles in 2014 and suggested modifications to enhance LIBOR and the establishment of risk-free
rates that might serve as LIBOR substitutes. In the same year, the Federal Reserve Board and the
Federal Reserve Bank of New York (FRBNY) created the Alternative Reference Rates Committee
(ARRC) to lead these efforts in the United States. The FCA declared in 2017 that it will no longer
require or encourage banks to submit LIBOR rates beyond 2021, thereby beginning the countdown
to LIBOR's demise. The procedure would neither be quick nor simple.

In 2022, final regulation published by the Board of Governors of the Federal Reserve defined the
benchmarks that would replace LIBOR. The base rate of the new benchmark will be linked to all of
the financial instruments. LIBOR will cease to exist on June 30, 2023 making it an important
milestone in the history of U.S. financial system. This new benchmark is known as SOFR (Secured
Overnight Financing Rate). Many of the countries will be phasing out this existing practice to adopt
new alternatives.

Learnings:
As the proper monitoring policies were not developed, the rate-setting process was manipulated by
the traders through their connection with banks. Also banks were trying to show that they were
obtaining the funds at cheaper cost as compared to the true cost of borrowing. Pressure of the
regulators with the help of lawful frameworks and sight of the watchdogs would have kept them
under fear of not so easily manipulating the system and affect the billions. Although, later the
policies and punishments were designed properly.

31
When the scam unfolded, the regulators just punished the banks by levying the penalties and
sending the traders involved in fraud to the jail. But the scale of the profit was not recognised while
considering the punishment as the officials themselves were not aware of it

The punishments, in terms of both their abundance and their character, are not sufficient. Because
the only sanctions that were handed out were fines, they do not meet the criteria to be called
"punishments" in the conventional sense of the word. There is no assurance that the sanctions will
have any kind of a deterrent effect on the banks in terms of preventing future instances of abusing
confidence in others. At this point, the judiciary should have brought up and emphasized a much
more important problem, which is the preservation and promotion of an ethical culture in the
financial sector.
The morality of the situation is still up in the air because neither the banks nor the authorities have
publicly accepted accountability for their errors and apologized for doing so, which has left the
matter unresolved. If the institutions are tainted all the way through to their foundations, there is no
reason to permit them to continue conducting business in the same manner as before. It would not
only be the right thing to do to discipline the market, but it would also be an act that would re-
establish "ethical values" in the centre of a financial system that is otherwise unprincipled.

References
[1] https://www.investopedia.com/terms/l/libor-scandal.asp
[2] https://en.wikipedia.org/wiki/Libor_scandal
[3] https://blog.pwc.lu/libor-simply-explained/
[4] Kyle, G., & Russell, A. (2013). Libor Explained.
https://www.batesgroup.com/publications/Libor_Explained.pdf
[5] https://www.theguardian.com/news/datablog/interactive/2012/jul/03/libor-rate-fixing-
bank-submissions

32