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Libor Manipulation

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Submitted By georgecha
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Comments on “The Turmoil at Barclays”
The article briefly summarizes the Libor scandal that involved the world’s biggest banks and its impact on Barclays. Mr. Bob Diamond, the head of Barclays for over 15 years, took the blame and was forced to resign. Barclays was fined near a half billion dollars and might have to pay more to settle the lawsuit. The misdeed is expected to be explained by the executive’s and traders’ misunderstanding of the indication conveyed by the bank of England, but the prevarication did not excuse Mr. Diamond’s breach of duty. Apart from Barclays, there are other dominant banks that being investigated. The large scale of involvement infers interest manipulation is ubiquitous in the financial market.
Because Libor is determined by taking the average of the world’s most influential banks’ reported interbank offered rate after omitting the highest and lowest 25 percent of submissions, it is a critical reference when banks set interest rate on consumer and corporate loans.
This is not the first time Barclays had manipulated London Interbank Offered Rate in favor of its earnings. During the global economic upswing in 2007, they conspired with other banks to report the artificial interbank rate. Libor was maneuvered somehow higher or somehow lower so as to generate profit from derivatives pegged to the benchmark rate. The previous head, Mr. Diamond resigned after pressure from senior investigation department increased and the impact of the misconduct start prevailing.
As Mr. Diamond stated, “it is difficult for Barclays to be isolated on this [manipulation], Libor has intrinsic flaw in its designation.” A group of banks is required to submit the interest rate daily at which they can borrow money between each other based on their estimation instead of the real transaction, thus bankers have incentives to fake the rate so as to conceal or

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