- Libor fixing mechanism : 11 am London time, rates submitted by 16 banks (typically). Top 4 and bottom 4 outliers disregarded and middle 8 averaged for official fixing. Note the large number of parties involved.
- Too much time wasted now by regulators on Tucker/Diamond/del Missier discussions. At the height of the crisis in Oct 2008, money markets were non-existent. It is the job of the central banks to calm markets in turmoil. If BOE deemed it desirable to have lower LIBORs for psychological comfort, there is absolutely nothing wrong here. Banks operate in fear of their central banks. If CB/BOE says lower, bank/Barclays says how low. Who said what to whom and when is irrelevant. No one is going to jail here for whatever has been or not been said/done.
- 1 bank on its own cannot influence Libor, given the fixing mechanism of discarding outliers. An individual bank trader submitting rates to suit his own book on any given day can never be caught or be proven to be in violation of any laws unless he confesses himself. Again a waste of time to look here.
- The real crime to prove here is - collusion among banks. Best evidence of this would be emails such as the Barclays ones (big boy, Bollinger). My guess is that there simply isn't enough incriminating evidence to be found. Only the hubris get caught.
- The "crime" can only be successful if more than a handful of the 16 banks act in concert consistently. On different days, different banks may or not be on same side to have an interest to collude profitably. It is beyond belief to think that a group of banks have been consistently colluding to "fix" Libor for own financial gain. Too difficult to execute and pre-conditions too onerous to be met. Suing the banks for general damages suffered from Liebor-gate would be a waste of time and resources.
- Prosecutors' best chances of success lie in identifying and proving particular instances of collusion against individual customers eg loan or IRS fixings on large rollover dates. If they can't do that, then all this will in time, simply die away as in US sub-prime.
2 comments:
Taichiseal
LOL> nice pun on the best "fixed rates"!
seems like everyone is digging up skeletons on alleged fixing of LIBOR, SIBOR, etc... takes their mind of bigger problems in europe and usa.
Media (and therefore, general public) getting excited over the wrong thing as usual due to a lack of understanding. Parliament asking the wrong questions as per Goldman grilling by Senate in Apr10. That said, the Brit lot are a lot better than the US Senate reps.
As an ex-insider, I am very sure that there is abuse of the fixing process for unfair gains in isolated instances. But for the media to conclude that there is a long running conspiracy to manipulate fixings to benefit the banks beggars belief and demonstrates a very superficial understanding of how Libor works.
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