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LIBOR rigging: Difference between revisions
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==== Interest rate derivatives ==== | ==== Interest rate derivatives ==== | ||
As per the basic model, to manage their structural interest rate risk, banks ''generally'' would want LIBOR low — but deposits are not the only show in town. Banks have other exposures to the interest rate market. One notable category: [[Interest rate swap mis-selling scandal|interest rate swap]]<nowiki/>s. | As per the basic model, to manage their structural interest rate risk, banks ''generally'' would want LIBOR low — but deposits are not the only show in town. Banks have other exposures to the interest rate market. One notable category: [[Interest rate swap mis-selling scandal|interest rate swap]]<nowiki/>s. | ||
Here, the bank “swaps” interest rates with individual (large) customers: it might, for an agreed period, pay one customer a fixed rate and receive from it a floating rate; with another it might pay floating and receive fixed. | Here, the bank “swaps” interest rates with individual (large) customers: it might, for an agreed period, pay one customer a fixed rate and receive from it a floating rate; with another it might pay floating and receive fixed. | ||
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{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute '''''the rate at which it could borrow funds''''', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}} | {{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute '''''the rate at which it could borrow funds''''', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}} | ||
On any day there would be a range of rates | On any day there would be a range of rates at which a bank ''could'' borrow. These might be firm offers from other lenders, good faith estimates or model outputs. There is an excellent subjunctive in there: “were it to do so” implies that it need not actually do so. | ||
Say the range on a given day was between 2.50% and 2.53%. Which of these was, for the purpose of the LIBOR Definition, “the rate at which it could borrow funds”? Plainly, a submitter could not submit all of them. | |||
It seems to JC the logical options (leaving aside their legality for a moment) were: | It seems to JC the logical options (leaving aside their legality for a moment) were: | ||