What Went Wrong with Libor Rate

The Libor Scandal began in the year of 2012. In 2003, a major outbreak investigation started due to reliable banks being a prime source of manipulation of interest rate, affecting many in the benefit of

The LIBOR manipulation took place during economic upswing (2005-2009) and global recession (2007-2009). Before crisis the rates were manipulated on the both sides, lower and upper. The traders requested to increase as well as to decrease the rate depending on their bets. If the traders managed to get the rates higher before the financial crisis then the consumers suffered.

The ethical dilemma presented is the case scenario represented a few risks to professional practice. According to Hamric,

The world’s financial system was almost brought down in 2008 by the collapse of Lehman Brothers that was a major international investment bank at that time. The government sponsored these banks’ bailouts that were funded by tax money in order to restore the industry. Before the crisis, banks were lending irresponsible mortgages to subprime borrowers who had poor credit histories. These mortgages were purchased by banks and packaged into low-risk securities known as collateralized debt obligations (CDOs). CDOs were divided into tranches by its default risk. The ratings of those risks were determined by rating agencies such as Moody’s and Standard & Poor’s. However, those agencies were paid by banks and created an environment in which agencies were being generous to ratings since banks were their major clients.

Q1 – What was up with Wall Street? The Goldman Standard and Shades of Gray.

The above-mentioned areas of focus could lead to ethical violations if they are not properly

The collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. Considered by many economists to have been the worst financial crisis since the Great depression of the 1930s. Economist Peter Morici coined the term the “The Great Recession” to describe the period. While the causes are still being debated, many ramifications are clear and include the failure of major corporations, large declines in asset values (some estimates put the drop in the trillions of dollars range), substantial government intervention across the globe, and a significant decline in economic activity. Both regulatory and market based solutions have been proposed or executed to attempt to combat the causes and effects of the crisis.

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

Often, unethical human behavior is not intentional, but is coincidentally based on boundaries such as individual knowledge, organizational unanimity, and societal acceptance of policy. On an individual level, although unbeknownst to the individual, humans make decisions based on the best outcomes for themselves, which may result in unintentional and unethical degradation of a fellow human. Further, an organizational setting will compound individual ethical dilemmas as internal groups working together seek acceptance through groupthink, which is the tendency of a work group to come to an agreement

The incumbent credit raters had received severe criticism following the collapse in creditworthiness and prices of mortgage-and asset-backed securities during the financial crisis in 2008 and 2009. The three large rating agencies were accused of facilitating a vast bubble in these securities by issuing overly

disregard for the rules and regulations. Now, when an unethical practice is witnessed and the

The recent financial crisis has a huge impact on systemic Important Financial Institutions; it’s distressing effect can be felt in almost every business area and process of a bank. A fairly large literature investigates the impact of financial crisis on large, complex and interconnected banks. The great recession did affect banks in different ways, depending on the funding capability of each bank. Kapan and Minoiu (2013) find that banks that were ex ante more dependent on market funding and had lower structural liquidity reduced supply of credit more than other banks during crisis. The ability of banks to generate interest income during the financial crisis was hampered because there was a vast reduction in bank lending to individuals and

The banking industry is highly competitive. The financial services industry has beenaround for hundreds of years and just about everyone who needs banking servicesalready has them. Because of this, banks must attempt to lure clients away fromcompetitor banks. They do this by offering lower financing, preferred rates andinvestment services. The banking sector is in a race to see who can offer both the

It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).

In 2012, financial markets saw the emergence of the largest financial crisis possibly due to the manipulation of the London Inter-bank Offered Rate by financial institutions mainly banks.. The inter-bank offered rate came into existence when financial institutions in London demanded a benchmark for lending rates. This was needed so as to calculate the prices for various financial instruments such as interest, swaps, futures, options, student loans, and mortgages As a result of this demand, a course of action were taken by the British Banker’s Association which in 1986, resulted in the development and publication of the first London Inter Bank Offered Rate.