What Went Wrong with Libor Rate

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s [pic] GROUP #: 5 MEMBERS #: 47713, 00000, 00000, 00000, 00000 PROGRAM: MBA29 COURSE: FINANCE IN INTERNATIONAL MARKETS INSTRUCTOR: PROF. LUC KEULENEER GROUP PAPER: WHAT WENT WRONG WITH LIBOR RATES? “Honesty is a very expensive gift. Do not expect it from cheap people” Warren Buffet Table of Contents Introduction 2 History 2 Origen of the crisis 3 Probable Reasons for the LIBOR manipulation 5 Main players involved in the LIBOR scheme 6 Recommendations on what to do to avoid this problem 6 Reference List 8 What when wrong with LIBOR rates?…show more content…
Barkley replied that its situation was strong and that it believes that were the other banks the ones that were quoting lower than effective interbank borrowing cost rates (Kregel 2012. p. 2-4). The main victim of this manipulation would have been the competitiveness in the financial markets; as this scheme would unfavorably influence the efficient distribution of capitals and cause distortion of prices, i.e. the mortgage prices would decreased and therefore the amount of houses sold would increase dramatically as well as related assets; such as: furniture, construction materials, etc. while depressing others. The (Abrantes-Merz, Kraten, D. Metz, and Seow, 2012. p. 138). The free market principles were breached and the impact was staggering as the Libor is the main benchmark for short-term Interest rates, a negligible distortion on LIBOR would lead to huge capital transference from lenders to borrowers in an immoral way (Abrantes-Merz, Kraten, D. Metz, and Seow, 2012. p. 1). Maybe the very same process to estimate the LIBOR rate propitiated the manipulation scheme. The BBA select 16 banks that submit quotes based on their effective funding costs. This open the possibility that even 5 of the 16 banks could collude to influence the LIBOR rates. The type of banks selected could also be a factor to try to influence the LIBOR, i. e. If they are lenders, they would be benefited from higher IBOR rates; on the other hand, if borrowers they would welcome

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