LIBOR: Origins, Economics, Crisis, Scandal, and Reform

Hou, David; Skeie, David R.

doi:10.2139/ssrn.2423387

Cited by 33 publications

(7 citation statements)

References 14 publications

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“…The LIBOR is a benchmark rate, or rather a set of rates, that indicates how much interest would be paid by large banks when they borrow short-term funds from other banks on the money markets, for a given period, in a given currency. At the time of the financial crisis, the LIBOR was the most closely watched number on the planet because it serves two crucial functions in the financial markets: (1) it is a reference rate for a range of financial contracts, and (2) it is an indicator of the financial ‘health’ of systemically important banks (Hou and Skeie, 2014; Koblenz et al, 2013). First, as a reference rate, the LIBOR is used in many financial contracts, including various retail loan and mortgage agreements, and, importantly for the benchmarks manipulation, as the basis of a range of derivatives contracts (contracts whose value depends on the movement of another underlining asset – Koblenz et al, 2013).…”

Section: Unpacking the Benchmarks: The Functioning And Fixing Of The mentioning

confidence: 99%

“…Despite increased scrutiny of the financial markets following the global financial crisis and the mobilization of law enforcement efforts, scandals such as the rigging of the LIBOR (London InterBank Offered Rate) (Wheatley, 2012) and Forex (foreign exchange) (Tillman et al, 2018), trading benchmarks by global investment banks indicate that the financial services industry was still affected by serious, pervasive and networked corporate crimes. The LIBOR came under public scrutiny at the height of the financial crisis with allegations that banks had deliberately misstated their LIBOR submissions to project financial soundness during market turbulence (Hou and Skeie, 2014). The ensuing investigations revealed that the manipulations had preceded the crisis and uncovered a range of rigging activities undertaken by multiple, systemically important participants in the financial markets.…”

Section: Introductionmentioning

confidence: 99%

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Scripting the mechanics of the benchmark manipulation corporate scandals: The ‘guardian’ paradox

Jordanoska

Lord

2019

European Journal of Criminology

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This article implements a crime script analysis to understand the procedural dynamics of corporate benchmark-rigging in the financial services industry. In 2012 several global banks were implicated in the manipulation of various trading benchmarks, portraying the industry as affected by serious, pervasive and ‘organized’ corporate crimes. Yet their dynamics have been relatively little studied by criminologists. To address this gap, we analyse official enforcement documentation, supplemented with data from interviews with key informants in the UK financial markets. We analyse the range of interactions between the relevant actors, their actions and the resources essential to the manipulations, and deconstruct the benchmark manipulations into four scenes (calculated positioning and identification of co-collaborators; recruitment; (ephemeral) manipulation; recompense and solicitation). The analysis reveals that regulatory and organizational systems play a paradoxical role of both ‘capable guardians’ and ‘facilitators of misconduct’; this has implications for criminological theory.

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Section: Unpacking the Benchmarks: The Functioning And Fixing Of The mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Scripting the mechanics of the benchmark manipulation corporate scandals: The ‘guardian’ paradox

Jordanoska

Lord

2019

European Journal of Criminology

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“…The reliability of the US LIBOR rate came under fire in June 2012 when Barclays Bank, UBS, RBS, and Rabobank allegedly under-reported their borrowing costs (Hou and Skeie, 2014). This raises questions over the stability of the financial system, robustness and effectiveness of reference rates, and credibility of financial regulators (Gyntelberg and Wooldridge, 2008).…”

Section: The Libor Manipulation and Its Likely Effect On The Magnitudmentioning

confidence: 99%

Liquidity risk contagion in the interbank market

Eross

Urquhart

Wolfe

2016

Journal of International Financial Markets, Institutions and Mo

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This paper studies liquidity risk contagion within the interbank market by assessing the long-run relationship of short-term interest rate spreads from January 2002 to December 2015. In particular, we model the interaction between the LIBOR-OIS spread, euro fixed-float OIS swap rate and the threemonth US-German bond spread and discover strong evidence of structural innovations affecting the interbank market. We find that when the short-term interbank market is affected by a liquidity shock, the LIBOR-OIS spread is a leader in moving back to equilibrium, while the euro-dollar currency swap rate and the US-German bond spreads are followers. Moreover, we find long-run cointegrating relationships and bi-directional causality between the spreads. However, structural breaks identified as prospective financial crises affect the long-run relationships and liquidity shocks drive interbank rates and spread fluctuations. Therefore, liquidity shocks propagating within the interbank market can forecast benchmark interest movements, and ultimately this has significant implications for policy-makers and market players alike.

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“…Due to limited availability of interbank bid and ask yields we use the Eurodollar deposit bid and ask rates as a proxy [47].…”

Section: Liquidity Spreadmentioning

confidence: 99%

The Financial Stress Index: Identification of Systemic Risk Conditions

Oet

Dooley

Ong

2015

Risks

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This paper develops a financial stress measure for the United States, the Cleveland Financial Stress Index (CFSI). The index is based on publicly available data describing a six-market partition of the financial system comprising credit, funding, real estate, securitization, foreign exchange, and equity markets. This paper improves upon existing stress measures by objectively selecting between several index weighting methodologies across a variety of monitoring frequencies through comparison against a volatility-based benchmark series. The resulting measure facilitates the decomposition of stress to identify disruptions in specific markets and provides insight into historical stress regimes.

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LIBOR: Origins, Economics, Crisis, Scandal, and Reform

Cited by 33 publications

References 14 publications

Scripting the mechanics of the benchmark manipulation corporate scandals: The ‘guardian’ paradox

Scripting the mechanics of the benchmark manipulation corporate scandals: The ‘guardian’ paradox

Liquidity risk contagion in the interbank market

The Financial Stress Index: Identification of Systemic Risk Conditions

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