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Homework answers / question archive / In their article “The Libor Scandal: A Need for Revised National and International Reforms”, Girasa and Kraus (2014), describe the events surrounding the 2012 exposure of the LIBOR scandal
In their article “The Libor Scandal: A Need for Revised National and International Reforms”, Girasa and Kraus (2014), describe the events surrounding the 2012 exposure of the LIBOR scandal. 1.Which financial institutions were found to be involved in the scandal and how were they penalised? 2.What alternative methods for determining LIBOR were suggested and have any of these been implemented since?
ANSWER
1.
The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with one-another to manipulate the London Interbank Offered Rate (LIBOR). The scandal sowed distrust in the financial industry and led to a wave of fines, lawsuits, and regulatory actions. Although the scandal came to light in 2012, there is evidence suggesting that the collusion in question had been ongoing since as early as 2003.
Many leading financial institutions were implicated in the scandal, including Deutsche Bank (DB), Barclays (BCS), Citigroup (C), JPMorgan Chase (JPM), and the Royal Bank of Scotland (RBS).
The scandal left several regulatory changes, lawsuits, and fines in its wake, damaging public trust in the financial markets.
2.
Recently, the FCA has announced that it will support LIBOR only until 2021, at which point it hopes to transition to an alternative system.
The New York Federal Reserve launched a possible LIBOR replacement in April 2018 called the Secured Overnight Financing Rate (SOFR).
