Insch Capital Management's Christopher Cruden examines whether Libor is still a relaible index for market participants.
According to some politicians it isn’t. (Can we
The issue came into question after last
summer’s scandal, when banks’ were
caught red-handed misreporting submissions for the calculation
of the Libor indices. Two reasons were behind the large
banks’ violations of Libor’s
integrity, both seemingly confirmed: 1. To make banks look
healthier 2. To reap insider trading profits.
The first violation occurred under the supervision by
central banks and apparently, with their knowledge. This
violation was embedded in the Libor calculation: Banks were
asked to rate their own worthiness. (Car drivers tend to rate
their driving abilities "above average".)
Libor is structurally prone to manipulation: The British
Bankers’ Association asks a panel of banks to
provide the rates at which they could borrow,
unsecured, at reasonable rates. Strategic
misrepresentation was made possible by basing Libor on
non-binding quotes rather than on actual transactions.
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |