you're reading...
Economic and Social Policies, PUBLICATIONS

Libor manipulation and its consequences

The interest rates produced daily through the Libor process are used as references in contracts for up to an estimated US$800 trillion in financial instruments (such as loans and derivative contracts).

Libor percentage

Image Copyright Kirill_M 2012.
Used under licence from Shutterstock.com

However, it has recently been established that Libor has been manipulated by Barclays Bank over a number of years. Erroneous interest rate submissions – both higher and lower than they ought to have been – helped produce greater profits and, during the financial crisis, protect Barclays’ reputation. Barclays has agreed to a €373 million fine from US and UK regulators.

It is another blow to the banking sector, the more so since other major international banks also seem to be implicated.

Guesstimates of the financial consequences of the false rates range up to many billions, but it is very difficult to determine with any accuracy.

Improvements in the way Libor is calculated are being sought. Greater transparency and proper independent governance in the process along with some control of individual judgments on interest rate submissions appear necessary. Furthermore, effective regulation and sanctions would dissuade future participants from committing fraud.

The EU has already acted, with the Commission adding such benchmarks to its proposed market abuse legislation. The EP’s ECON Committee plans to hold a hearing on Libor.

Click here to read the complete briefing

Discussion

Trackbacks/Pingbacks

  1. Pingback: The week on the EP Library’s blog: close to your concerns « Library of the European Parliament - September 14, 2012

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Download the EPRS App

EPRS App on Google Play
EPRS App on App Store
What Europe Does For You
EU Legislation in Progress
Topical Digests
EPRS Podcasts

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 3,504 other followers

Disclaimer and Copyright statement

The content of all documents (and articles) contained in this blog is the sole responsibility of the author and any opinions expressed therein do not necessarily represent the official position of the European Parliament. It is addressed to the Members and staff of the EP for their parliamentary work. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the European Parliament is given prior notice and sent a copy.

For a comprehensive description of our cookie and data protection policies, please visit Terms and Conditions page.

Copyright © European Union, 2014-2019. All rights reserved.

<span>%d</span> bloggers like this: