Assignment

Assignment 1

What is the LIBOR scandal?

The LIBOR scandal is by Barclay’s, a multinational bank and financial institution based in the UK, admitted to regulators that it tired to manipulate London Interbank Offered Rate before and during the financial crisis in 2008. Barclays deliberately set its reports for those rates low from August 2007 though early 2009, it made false reports concerning both benchmark interest rates to benefit the bank’s derivatives trading positions by either increasing its profits or minimizing its losses to protect and hide the financial condition.

What Barclays did?

1.Between 2005 and 2007, employees in Barclays' trading units convinced employees responsible for submitting Libor rates to alter the bank's rates based on their derivatives trading positions to shore up their own profits.

2. Certain traders at Barclays coordinated with other banks to alter their rates as well.

3. Later, during the height of the financial crisis, Barclays submitted artificially low rates to give the impression that the bank could borrow money more cheaply and was healthier than it was.

Has anything been done to stop this kind of scandal from happening?

As one of the most highly cited benchmarks in the financial world, LIBOR affect lots of financial product like derivatives, loans, mortgages, student loans etc. Analysts and experts have some thoughts to avoid the scandal happen again, for example:

1.Leave it to the government: trying to used the government control to clean up the manipulation

2. Leave to the market: try to find some rates reflect the real market rates, like the repo rates to replace the LIBOR

3. Go auction-style: like the US Treasury bills way go on the auction market to correct flaws in LIBOR.

4. Give main street some justice: form the Act to regulate the market and punish the manipulate.

All of these ways have some positive impact to regulate the market and try to avoid this kind of scandal happened again, however, it still...