libor final

7/30/2019 Libor Final

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Libor Scandal

Rohit DhirSrijan Srivastava

B. S. Swaminathan


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Libor : An Overview

Lendsunsecured

funds to Bank 1 Lends unsecuredfunds to Bank 2

London Inter-bank Market

Publishes benchmark interest rate LIBOR

Each morning, global banks submit theirborrowing costs to BBA


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So what is there in a number..?

Confused ?

Ljun


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Effect of LIBOR in the World market

Used as a base rate forsetting interest rateson loans

DIRECTLY AFFETCS

Leads to


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Effect on Global Financial system

Variable interestrates =

LIBOR + spread

Affected byScandal !


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Comparison to other Financial scandals


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Any idea about LIBOR scandal ??


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$300 trillion !!!


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Who is responsible for the scanda


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Role of Barclays


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FSA breaches by Barclays

Principle 5 breached many times between 2005 and 2008

Again Principle 5 breached between 2007 and 2009

Breached Principle 3 between 2005 and 2010

Principle 2 breached

De

Sub

No

Faile

M

Man

Ski


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Libor during the Sub Prime crisis

Liquidity conditions worsened in London

Lending difficulty greater than overnight maturity

Frequency and average size of transactions reduced

Still the process remained the same


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Barclays Role during subprime crisis

Barclays ->Liquidity problem -> Negative publicity

Earlier, Barclays submissions were higher than the other banks

Drew more attention ,senior management signalled to reduce

Increased public scrutiny from Aug 2007


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Financial Instruments impacted

Interest rateswaps


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Interest rateswaps

Company A Company Swaps Bank

Bank A Bank B

Fixed - 7% Fixed(10%

Variable LIBOR Variable L

Variable Fixed

5M

5M7%

L iborL ibor

8.5%

Libor 1%9.5%

8%


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Interest rate future is a financial derivative

It is almost 25-30 per cent of all derivatives

Underlying security, actually a debt obligation that moves in vinterest rates change

Interest RateFutures



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Mortgage loan with the interest rate periodically adjusted

Transfer interest rate risk from lender to borrowers

Relatively less impacted

Interest RateFutures

Variable RateMortgages



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Investigation Facts

Internal communication sent by Barclays submitters

Analysis of the Barclayss LIBOR submission consistent with D

External traders requests reached submitters through intern

Medium

1)Verbally 2) E-Mail 3) IM

Between 2005 to 2009 >=173 requests for US dollar Libor

US Libor EURO Libor Yen Libor


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Investigation Facts




Medium


Between 2006 to 2009>=58 requests for EURO Libor



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Investigation Facts




Medium


Between 2006 to 2009>=26 requests for Yen Libor



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Typical Example

Trader C: The big day[has] arrived My NYK are screaming

about an unchanged 3m Libor. As always, any help would be grappreciated. What do you think youll go for 3m?

Submitter: I am going 90 although 91 is what I should be pos

Trader C: [] when I retire and write a book about this businame will be written in golden letters [].

Submitter: I would prefer this [to] not be in any book!



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Events that followed investigation

Barclays was found guilty for rigging the rate ,which was the bfor more than $360 trillion of securities

Fine Split

Barclays CEO Robert Diamond quits

59.5m 129m 103m


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Events that followed investigation

Barclays was guilty for fudging the rate ,which was the benchmore than $360 trillion of securities

Fine Split

Barclays CEO Robert Diamond quits

Total 292

59.5m 129m 103m


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Structural Weakness

Trimmed meantakes care of

outliers

Singlebank mis-

stated

Lideviunl


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Structural Weakness

Trimmed meantakes care ofoutliers

Singlebank mis-

stated

Impact on liboris amplified

Multiplebanks

mis-stated

Libdeviunli

Libdeviprob


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Future

Lots of lawsuits in pipeline

Greater trust related issues

More losses to the banks shareholders

Stiffer regulations


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Future

Lots and lots of lawsuits in pipeline



Stiffer regulations

Investment Banking Retail Banking


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Future

Lots and lots of lawsuits in pipeline



Stiffer regulations

Investment Banking Retail Banking


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If a fancy newdesign will ecorporate or ato conceal fmarket the scindebtedness...

top managemthe boardcongratulationbonus, or doethats not wha


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References

http://dealbook.nytimes.com/2012/07/13/barclays-informeyork-fed-of-problems-with-libor-in-2007/?hp&pagewanted=

http://www.independent.co.uk/news/business/news/barclashamed-by-290m-fine-for-market-fixing-7893782.html

http://www.quora.com/London-Inter-Bank-Offered-Rate/HoBarclays-rig-LIBOR-rates-And-why-was-it-detected-now

http://fsahandbook.info/FSA/html/handbook/PRIN/2/1

http://en.wikipedia.org/wiki/Adjustable-rate_mortgage

http://www.economist.com/blogs/schumpeter/2012/07/bacrisis
http://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://fsahandbook.info/FSA/html/handbook/PRIN/2/1http://en.wikipedia.org/wiki/Adjustable-rate_mortgagehttp://www.economist.com/blogs/schumpeter/2012/07/banking-crisishttp://www.economist.com/blogs/schumpeter/2012/07/banking-crisishttp://www.economist.com/blogs/schumpeter/2012/07/banking-crisishttp://www.economist.com/blogs/schumpeter/2012/07/banking-crisishttp://www.economist.com/blogs/schumpeter/2012/07/banking-crisishttp://en.wikipedia.org/wiki/Adjustable-rate_mortgagehttp://en.wikipedia.org/wiki/Adjustable-rate_mortgagehttp://en.wikipedia.org/wiki/Adjustable-rate_mortgagehttp://en.wikipedia.org/wiki/Adjustable-rate_mortgagehttp://fsahandbook.info/FSA/html/handbook/PRIN/2/1http://fsahandbook.info/FSA/html/handbook/PRIN/2/1http://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.quora.com/London-Inter-Bank-Offered-Rate/How-did-Barclays-rig-LIBOR-rates-And-why-was-it-detected-nowhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://www.independent.co.uk/news/business/news/barclays-shamed-by-290m-fine-for-market-fixing-7893782.htmlhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=printhttp://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/?hp&pagewanted=print

libor final

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