The Libor scandal has rocked the banking industry and those involved may face possible jail time. Last Friday it was announced that Britain’s Serious Fraud Office will investigate the manipulation of the Libor (London Interbank Offer Rate) which stipulates the interest of bank borrowing rates from one another.
Such interbank borrowing would be used to meet any deficits a bank may face after a day of trading or if a bank finds itself with a cash surplus then it can lend to other banks which have shortfalls- which is where the interest rate is calculated using the Libor rate.
Now you may be asking why the Libor rate is so important. Well it’s estimated that $350 trillion worth of contracts have been made which in some way or another relate to the manipulated Libor rate, meaning a high number of consumers, investors and businesses have been misled.
It was revealed late last month that Barclays had manipulated the Libor rate for for their own financial gain which meant customers received misleading rates which could have affected those seeking loans and mortgages.
The bank agreed to pay £290 million in penalties and former Barclays Chief Executive Bob Diamond has recently been grilled by a Select Committee over his role in the scandal where he said “I’m sorry, disappointed and angry”, following his decision to step down as Chief Executive along with other senior figures at the bank.
Danny Alexander, Chief Secretary to the Treasury said “As a government, we will make sure the SFO has all the resources it needs to conduct this investigation in full… I want the SFO to follow the evidence wherever it goes, to bring prosecutions if they can.” [BBC].
Regulators are currently investigating the scandal and haven’t ruled out the possibility that other banks were involved in rate fixing. But with so many assets based on the manipulated rate, we can expect more lawsuits and evidence to surface as investigations take place.