LIBOR lowballing

Chez Guevara — Dining in style at the Disaster Café™ →Go uptown Index: Click ᐅ to expand: Disaster Café Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

The LIBOR rigging scandal — wherein many traders were prosecuted for manipulating the LIBOR rate to their trading advantage, only really came about as a result of the LIBOR lowballing scandal — a different scandal — where Banks deliberately understated the value of LIBOR that they could borrow at in the market.

Whereas — arguably — the LIBOR rigging was at least within the literal meaning of the LIBOR rules, if not their spirit, in that the rates banks submitted were actual rates that banks could borrow at — frequently a bit higher than the lowest they could borrow at — in the lowballing scenario, the rates submitted were outright false: it was a time of maximum market spookedness; everyone thought the banks were going down, and no one was lending at normal rates to each other.

In order not to further spook the market, the LIBOR submitters, allegedly under pressure from “upstairs” — it not being settled exactly how far upstairs — submitted rates materially lower than where they actually could borrow at the time.