EC-408E-INTL ECONOMICS-A-12/S3 DR. HAMID ZANGENEH
The Global Financial Crisis & LIBOR

London Interbank Offered Rate

One Of The Largest Banking Scandals In History, An Emerging Controversy Over Whether Major Financial Institutions Have Been Manipulating The LIBOR, A Key Interest Rate Banks Use To Borrow Money From Each Other That Is ”Used As A Benchmark To Set Payments On About $800 Trillion Worth Of Financial Instruments.” MIT Professor Of Finance Andrew Lo Told CNN Money That The LIBOR-Manipulation Story “Dwarfs By Orders Of Magnitude Any Financial Scams In The History Of Markets”

Anthony Bruno

7/21/2012

Abstract
Following investigations into Barclays' manipulation of London Interbank Offered Rates (Libor), CFR's Sebastian Mallaby highlights three implications from the unfolding scandal:
Conflicts of Interest Within Banks: Barclays' distorted reports on borrowing rates demonstrate the system's failure to prevent damage from conflicts of interest between banks and their traders. "Chinese walls don't work," Mallaby says. "It's a lesson we've learned over and over again in finance."
The Role of Regulators: The alleged collusion between the Bank of England and Barclays indicates a critical challenge in the governance of financial markets: Regulators are forced to bend rules to protect banks, "not because they are bribed," says Mallaby, "but because they are blackmailed, in the sense that the banks, by threatening to go under and do untold damage to the economy, can force regulators to bend the rules on their behalf."
Responding to the Scandal: Calls for cultural change and for executives to give up remuneration simply scratch the surface, Mallaby argues. "The real lesson to be learned here is that banks which are too big to fail are also too big to exist," he says (Mallaby, 2012).
Barclays bank agreed in late June to pay $453 million to