The Fix Is in: Detecting Portfolio Driven Manipulation of the Libor

Snider, Connan; Youle, Thomas

doi:10.2139/ssrn.2189015

Cited by 31 publications

(20 citation statements)

References 12 publications

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“…Snider and Youle () expand on the results provided by Mollencamp and Whitehouse () and focus on a second – potentially even more important – incentive for manipulation. Given the large notional volumes referencing Libor (and, of course, other reference rates like Euribor), panel banks could have substantial incentives to manipulate Libor submissions to move the fixing in their favour.…”

Section: A Review Of the Literaturementioning

confidence: 99%

“…Given the large notional volumes referencing Libor (and, of course, other reference rates like Euribor), panel banks could have substantial incentives to manipulate Libor submissions to move the fixing in their favour. Snider and Youle () argue that, given the incentives for manipulation due to portfolio effects, a bunching effect around particular points should be observed. In other words, contributions just above or below the cut‐off points used for the trimming procedure should be observed with higher frequency .…”

Section: A Review Of the Literaturementioning

confidence: 99%

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The Manipulation Potential of Libor and Euribor

Eisl

Jankowitsch

Subrahmanyam

2017

Euro Fin Management

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The London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) are two key benchmark interest rates used in a plethora of financial contracts. The integrity of the rate‐setting processes has been under intense scrutiny since 2007. We analyse Libor and Euribor submissions by the individual banks and shed light on the underlying manipulation potential for the actual and several alternative rate‐setting procedures. We find that such alternative fixings could significantly reduce the effect of manipulation. We also explore related issues such as the sample size and the particular questions asked of the banks in the rate‐setting process.

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Section: A Review Of the Literaturementioning

confidence: 99%

Section: A Review Of the Literaturementioning

confidence: 99%

The Manipulation Potential of Libor and Euribor

Eisl

Jankowitsch

Subrahmanyam

2017

Euro Fin Management

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“…Historically, algorithms based on the work of Furfine have been used as a method of identifying overnight or term federal funds transactions. The Research Group of the Federal Reserve Bank of New York has 3 For more details, see Snider and Youle (2013), Duffie, Skeie and Vickery (2013), Kuo, Skeie and Vickery (2012), Gyntelberg and Wooldridge (2008), and Michaud and Upper (2009). The Wheatley Review of Libor (H.M. Treasury, 2012) outlines a range of recommendations for the reform of Libor.…”

Section: Introductionmentioning

confidence: 99%

Identifying Term Interbank Loans from Fedwire Payments Data

et al. 2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractInterbank markets for term maturities experienced great stress during the 2007-09 financial crisis, as illustrated by the behavior of one-and three-month Libor. Despite widespread interest in these markets, little data are available on dollar interbank lending for maturities beyond overnight. We develop a methodology to infer individual term dollar interbank loans (for maturities between two days and one year) by applying a set of filters to payments settled on the Fedwire Funds Service, the large-value bank payment system operated by the Federal Reserve Banks. Our approach introduces several innovations and refinements relative to previous research by Furfine (1999) and others that measures overnight interbank lending. Diagnostic tests to date suggest our approach provides a novel and useful source of information about the term interbank market, allowing for a number of research applications. Limitations of the algorithm and caveats on its use are discussed in detail. We also present stylized facts based on the algorithm's results, focusing on the 2007-09 period. At the crisis peak following the failure of Lehman Brothers in September 2008, we observe a sharp increase in the dispersion of inferred term interbank interest rates, a shortening of loan maturities, and a decline in term lending volume.

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“…32 There would be understanding for inability to comply with requests if it would create a signi…cant con ‡ict with a bank's portfolio position. On another occasion involving Rabobank, a submitter was asked to submit 3-month Euribor "at the ceiling" because, as another bank's swaps trader explained "I am long in …xings against Dec futures it cost me a fortune yesterday,"upon which he was informed that Rabobank couldn't because:…”

Section: Episodic Break-upmentioning

confidence: 99%

Collusive Benchmark Rates Fixing

2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe …xing of the Libor and Euribor benchmark rates has proven vulnerable to manipulation. Individual rate-setters may have incentives to fraudulently distort their submissions. For the contributing banks to collectively agree on the direction in which to rig the rate, however, their interests need to be su¢ ciently aligned. In this paper we develop cartel theory to show how an interbank lending rates cartel can be sustained by preemptive portfolio changes. Exchange of information facilitates front running that allows members to reduce con ‡icts in their trading books. Designated banks then engage in eligible transactions rigging to justify their submissions. As the cartel is not able to always …nd stable cooperative submissions against occasional extreme exposure values, there is episodic recourse to non-cooperative quoting. Periods of heightened volatility in the rates may be indicative of cartelization. Recent reforms to broaden the class of transactions eligible for submission may reduce the level of manipulation, but can lead to more frequent collusive quoting.JEL-codes: E43, G14, G21, K21, L41

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The Fix Is in: Detecting Portfolio Driven Manipulation of the Libor

Cited by 31 publications

References 12 publications

The Manipulation Potential of Libor and Euribor

The Manipulation Potential of Libor and Euribor

Identifying Term Interbank Loans from Fedwire Payments Data

Collusive Benchmark Rates Fixing

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