Abstract:Amongst a series of scandals to hit international financial markets in recent years, that surrounding the London Interbank Offered Rate (LIBOR) -a highly influential interest rate benchmark -has attracted particularly intense media scrutiny. This paper seeks to push beyond conventional understandings to unpack critically both LIBOR itself and the scandal involving its manipulation by major international banks. Envisioning LIBOR as a commodity beset by inherent contradictions, the paper mobilizes the tropes of … Show more
“…In 2012, investigations on both sides of the Atlantic brought to light the fact that banks had been manipulating the benchmark to their own advantage by making inappropriate rate submissions (LIBOR is estimated daily on the basis of submissions by multiple banks). And they had often been doing so in active collusion with one another: Ashton and Christophers (:198), discussing the role of Barclays, refer to both(i) Barclays traders’ attempts to influence the rate submissions of other banks (by making requests to those banks’ traders, with a view to such traders passing on the requests to their own submitters); and (ii) Barclays traders’ requests to Barclays submitters based on the requests of traders (often ex‐Barclays employees) working at other banks.…”
Different economic measures afford different ways of seeing processes of financialisation. In the prototypical case of the US economy, the most compelling evidence of post‐1970s financialisation is found in corporate profits measures. This much has been clear for at least a decade. What remains much less clear, however, is the explanation for the long‐term maintenance and amplification of extreme financial‐sector profitability that financialisation in the United States has and continues to entail. With a specific focus on banking, this article turns to post‐Marxian scholarship on profit rate trends to explain this phenomenon. It argues that limited and declining levels of competition within the US banking sector during recent decades—rooted in high levels of industry concentration, collusive behaviour, and substantial entry barriers—have contributed to sustaining and boosting abnormal sectoral profitability. In doing so, the article theorises financialisation in the United States explicitly in terms of monopoly profit.
“…In 2012, investigations on both sides of the Atlantic brought to light the fact that banks had been manipulating the benchmark to their own advantage by making inappropriate rate submissions (LIBOR is estimated daily on the basis of submissions by multiple banks). And they had often been doing so in active collusion with one another: Ashton and Christophers (:198), discussing the role of Barclays, refer to both(i) Barclays traders’ attempts to influence the rate submissions of other banks (by making requests to those banks’ traders, with a view to such traders passing on the requests to their own submitters); and (ii) Barclays traders’ requests to Barclays submitters based on the requests of traders (often ex‐Barclays employees) working at other banks.…”
Different economic measures afford different ways of seeing processes of financialisation. In the prototypical case of the US economy, the most compelling evidence of post‐1970s financialisation is found in corporate profits measures. This much has been clear for at least a decade. What remains much less clear, however, is the explanation for the long‐term maintenance and amplification of extreme financial‐sector profitability that financialisation in the United States has and continues to entail. With a specific focus on banking, this article turns to post‐Marxian scholarship on profit rate trends to explain this phenomenon. It argues that limited and declining levels of competition within the US banking sector during recent decades—rooted in high levels of industry concentration, collusive behaviour, and substantial entry barriers—have contributed to sustaining and boosting abnormal sectoral profitability. In doing so, the article theorises financialisation in the United States explicitly in terms of monopoly profit.
“…More precisely, these are primarily interbank markets, consisting of banks lending to and borrowing from each other: in the U.S. case, for example, the money market's core is ''the interbank federal funds market, where financial institutions borrow and lend balances that they hold at the Federal Reserve" (Goodfriend, 2011: 120). The money markets arguably therefore represent the concentrated, bank-interactional financial-market-form par excellence; and the recent LIBOR and EURIBOR scandals, which were explicitly money-market phenomena and saw major international banks colluding to form interest-rate-manipulation cartels (Ashton and Christophers, 2015), shone a particularly bright light on this characteristic.…”
Section: Financial Markets As Concentrated Institutional Interactionmentioning
“…But what remains interesting and surprising about LIBOR is that during and since its reputational crisis there was no evidence of it being abandoned. The widely‐held reason was that it would have become a legal nightmare to unwind those $800 trillion worth of contracts (Wheatley : 6), although Ashton and Christophers () contend that the large fines issued to recalcitrant panel banks were an attempt to defend the underlying rigor of the LIBOR brand. Whatever the reason, contracts continue to be written in reference to LIBOR rates, and billions of dollars per year change hands according to movements on LIBOR.…”
Section: Libor As a Socially Constructed Financial Anchormentioning
confidence: 99%
“…These submitted rates might be pushed higher or lower to suit the specific exposures held by the bank's interest rate swaps traders at any point in time. Barclays bank admitted undertaking such practices from 2005 (United States Department of Justice ), although it is believed that they are of even longer standing ( The Economist ; Ashton and Christophers ). UBS also admitted rigging rates in what some researchers have termed an ‘epic plot’ (Enrich and Eaglesham ).…”
One of the on-going consequences of recent financial crises seems to be that the conventional 'anchor' measures of global finance (such as the US dollar, treasury bonds and AAA rated securities) are no longer playing the anchoring role once believed of them. LIBOR now needs to be added to this list and not just because it has been tarnished by illegal practices, but because it is looking increasingly surpassed by financial market practices. LIBOR was believed to provide a risk-free rate of interest, but has been revealed to be risk-laden. Moreover, LIBOR is a measure of the costs of borrowing, whilst market concern is increasingly with measures of interest rate volatility. This paper looks at why, in the context of crisis, financial market focus on interest rates is turning towards other benchmarks, notably the overnight indexed swap (OIS) market, and what this shift might be telling us about the anchoring requirements of global financial markets.
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