LIBOR rigging: Difference between revisions

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Chez Guevara — Dining in style at the Disaster Café™

Dramatic look gopher goes to the British Bankers’ Association (von Sachsen-Rampton, 2024)

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“If the law supposes that,” said Mr. Bumble, squeezing his hat emphatically in both hands, “the law is a ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”

— Charles Dickens, Oliver Twist

LIBOR: deep background

Banks have structural interest rate risk

The basic model of a bank is to borrow, short-term, at a low rate, and lend, long-term, at a high rate. Generally, banks calculate interest on deposits, by which they borrow, at a floating rate and on term loans, by which they lend, at fixed rates.

There is a straightforward reason for this: call deposits don’t have a term; they can be withdrawn at any time. All you can do is apply a prevailing daily rate.^[1] On the other hand most people borrow for a fixed term and want certainty on how much interest they must pay, so prefer fixed interest.

Since banks borrow in floating and lend in fixed, they have “structural interest rate risk”. It is a natural function of how banks work. They want floating rates to be low, and to move lower. If they don’t manage this risk, things can get funky, fast. Just ask Silicon Valley Bank.

So knowing what that floating rate is, and managing it, is an important risk management function for the bank. A risk well managed is called a “return”. The floating rate is different from the central bank’s base rate, and moves daily in response to market conditions.

Where does this “floating rate” come from, then?

In the good old days, each bank worked out its own floating rates based on its own models, funding costs and market positioning. This process was neither transparent nor standardised. Rates could vary significantly between similar banks. As long as interest rates were not tradable instruments, this did not much matter to banks: they just told their customers what the floating rate was each day, and that was that.

In the early nineteen eighties, some bright sparks at Salomon Brothers figured out how to make interest rates into a tradable instrument. To standardise that instrument, the banks realised they would need a common way of describing how their interest rates change through time. A “benchmark”.

Chess club

Enter the the British Bankers’ Association. This was just the sleepy, city-grandees-in-a-smoke-filled-gentlemen’s-club-in-Threadneedle-Street of your imagination. It began to compile what it called the “London Interbank Offered Rate” — “LIBOR”. This was to be an objective distillation of all the major banks’ borrowing rates.

The method the BBA chose to compile it was simple: it invited 18 major banks to literally, phone in what they believed they could borrow in various currencies and maturities in the market each day. The BBA would then compile the submissions, “trim” off the top and bottom four, average the rest and publish a set of daily LIBOR rates for each currency and maturity, before toddling off for a liquid lunch at the Garrick and their regular three o’clock tee time at Wentworth.

You get the picture.

With LIBOR published, the banks could then set their rates for call deposits, calculate suitable fixed rates for new term loans, and more importantly trade standardised interest rate instruments by reference to the new LIBOR “benchmark”.

Happy, unadventurous stuff, carried out by happy, unadventurous people. Look: we don’t want to run the interest rate-setting crowd down, but before 2007, the LIBOR rate setting process was like the after-school chess club: snoresville. All the cool kids were out shagging, smoking weed and shorting structured credit. None of the hepcats paid much attention to LIBOR.

Now. It is one of JC’s axioms of financial scandal that calumny happens where you least expect it. This is because success in financial services is in large part about “edge”, and you generally only find an edge where no-one else is looking for it.

The cool kids

Tom Hayes was a cool kid (metaphorically: literally he has been described as “socially awkward”) but he hung out in the chess club. He, and a bunch of other groovers, found some edge there, where no one was looking for it. No one bothered them and they didn’t do a lot of harm — not, at least, that anyone has been since able to point to. But they sent each other lots of embarrassing emails.

In any case, they made an effort to submit LIBOR rates that suited their derivatives trading positions and not, necessarily, their banks’ structural interest rate positions.

That this all came to light as a result of the unrelated “lowballing” scandal, after which lots of people began looking very hard at LIBOR, and not liking what they saw.

Another one of JC’s axioms: if you like sausages, don’t work in a smallgoods factory.

As per the “basic banking model”, to manage its structural interest rate risk, a bank generally would want LIBOR to be low. But deposits are not the only show in town — there are other exposures to the interest rate market: notably, the new tradable instruments: interest rate swaps.

Interest rate swaps

In an interest rate swap, the bank “swaps” interest rates with individual counterparties: it might, for an agreed period, pay one counterparty a fixed rate and receive from it a floating rate; with another it might pay floating and receive fixed.

Before the advent of swaps, the only way of getting exposure to interest rates was by borrowing and lending principal. This required a lot of money down.^[2] Interest rate swaps got popular, fast. There are now trillions of dollars in notional interest rate swaps outstanding on any day.

Unlike basic banking, there is no structural bias to swap trading. If a bank swaps a five-year fixed rate for a five-year floating rate, and LIBOR then goes up, by definition the bank profits: the “present value” of its incoming floating rate will increase while the present value of its outgoing fixed rate stays the same. The dealer is therefore “in-the-money”. If it swapped floating for fixed in the same case, it would book a corresponding loss.

While banks try to balance their books so their portfolio of customer swaps offset each other as far as possible, how they “position” the book might help manage the bank’s structural interest rate risk.

Under the “basic banking model”, a bank will always be “axed” for floating rates to be as low as possible. You would expect a basic bank’s LIBOR submissions to reflect that. But a swap trader who is “long” floating rates will wish floating rates to go higher.

This prospect, we venture, was not wildly present in the minds of the Sir Bufton Tuftons who formulated the LIBOR rules that defined how submitting banks should choose the rates they submit each day.

The question arose later, even though it did not arise then: when submitting a rate, what account, if any, may a bank take of its own derivatives trading book?

The LIBOR Definition

The BBA’s guidance came in the form of “Instructions to BBA LIBOR Contributor Banks”. The critical part of these — what the court called the “LIBOR Definition” — ran as follows:

“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 will 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, by the way: “were it to do so” implies that that a submitting bank need not actually do so.

Say the range of available rates a bank sees on a given day is between 2.50% and 2.53%. Which of these is “the rate at which it could borrow funds”? You can only choose one.

Setting aside for a moment compliance with the LIBOR Definition, the possible avenues open to a bank in submitting a rate are:

Pick an “available” rate: Choose one of the rates from the range, as above.

Manufacture a blended rate from the range: Contrive some artificial rate from within that range, reflecting a median, a weighted average, or some such thing.

Make one up: Submit a rate that did not fall within the estimated range, whether lower or higher.

“Making one up” plainly falls outside the scope of the LIBOR Definition. “Making a blended rate” does not quite conform to its text, but perhaps captures its spirit.

To an uncomplicated reading, “picking one of the available rates” seems to fall squarely within the LIBOR Definition. This was a rate at which the bank could borrow funds.

This is what Hayes did. The complication is that he actively selected the available rate that best suited his or, in some cases, competitors’ derivative trading positions. That is, he was guided by his own commercial interests, and not the “structural” interests of a hypothetical basic bank.

This is the crux of the case: was this ulterior motive dishonest in light of the “proper basis for the submission of those rates”? The Crown alleged it was.

References

↑ You could look at deposits as “rolling overnight term loans”. Their fixed interest therefore resets each day. Yes: there are such things as term deposits, but roughly 70% of deposits are overnight. (see Bank of England statistics).
↑ It is a misconception that interest rate swaps do not involve principal borrowing and lending, but that is a story for another day

[1] You could look at deposits as “rolling overnight term loans”. Their fixed interest therefore resets each day. Yes: there are such things as term deposits, but roughly 70% of deposits are overnight. (see Bank of England statistics).

[2] It is a misconception that interest rate swaps do not involve principal borrowing and lending, but that is a story for another day

[1]

[2]

@@ Line 1: / Line 1: @@
-{{cn}}{{quote|
+{{a|disaster|{{image|Dramatic look|jpg|''[[Dramatic look gopher]] goes to the [[British Bankers’ Association]]'' {{vsr|2024}}}}}}{{quote|
-{{drop|“T|he courts have}} for many years been developing and using a broad concept which at times has threatened to bring chaos rather than light to the solution of the legal problems it has affected. This concept enunciates the division between questions of law and questions of fact.
+{{drop|“I|f the law}} supposes that,” said Mr. Bumble, squeezing his hat emphatically in both hands, “the law is a ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”
-:—''{{plainlink|https://scholarship.law.wm.edu/facpubs/810/|What is a “Question of Law”?}}'', Arthur W. Phelps, 1949, bringing yet more chaos to the table.
-}}{{quote|
-{{drop|“I|f the law}} supposes that,” said Mr. Bumble,… “the law is a ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”
 :— Charles Dickens, ''Oliver Twist''}}
-This appeal from Tom Hayes’ conviction for “[[LIBOR]] rigging” follows the US acquittals in 2022 of Matt Connolly and Gavin Black of equivalent charges relating to the same actions, and centres on a two-limbed question:
+== LIBOR: deep background ==
-{{L3}}What do the LIBOR and EURIBOR fixing rules mean and, given they were found in a previous trial to mean one thing, while the appellants believed them to mean another, and <li>
-Whose job was it to decide what they meant? Was it, in other words, a matter of fact or law?</ol>
-====“A conspiracy to defraud”====
+==== Banks have structural interest rate risk ====
-Hayes and Palombo were indicted on the ancient [[common law]] offence of “conspiracy to defraud”, rather than under the Fraud Act of 2006, an act passed following a Law Commission report which recommended the common law offence be abolished, considering it to be “unfairly uncertain, and wide enough to have the potential to catch behaviour that should not be criminal”.<ref>{{plainlink|https://www.gov.uk/guidance/use-of-the-common-law-offence-of-conspiracy-to-defraud--6|Attorney General guidance to the legal profession on use of conspiracy to defraud}}, November 2012.</ref> The common law offence was retained “for the time being” on a “just in case we’ve missed something” basis.<ref>The government decided to retain it for the meantime, but accepted the case for considering repeal in the longer term. Whether there is a continuing need for retention of the common law offence is one of the issues that will be addressed in the Home Office review of the operation of the Fraud Act 2006, which will take place 3 years after its implementation. (op cit)</ref>
+{{drop|T|he basic model}} of a bank is to borrow, short-term, at a low rate, and lend, long-term, at a high rate. Generally, banks calculate interest on deposits, by which they borrow, at a [[Floating rate|floating]] rate and on term loans, by which they lend, at [[Fixed rate|fixed]] rates.
-In any case, the elements of the common law offence are, more or less:
+There is a straightforward reason for this: [[Deposit|call deposit]]s don’t have a term; they can be withdrawn at any time. All you can do is apply a prevailing daily rate.<ref>You could look at deposits as “rolling overnight term loans”. Their fixed interest therefore resets each day. Yes: there are such things as term deposits, but roughly 70% of deposits are overnight. (see ''{{Plainlink|https://www.bankofengland.co.uk/statistics/tables|Bank of England statistics}}'').</ref> On the other hand most people borrow for a fixed term and want certainty on how much interest they must pay, so prefer fixed interest.
-{{L1}}'''Conspiracy''': That there was an agreement between two or more persons. <li>
-'''Fraudulent intent''': That they intended to defraud another person or group. <li>
-'''Dishonesty''': Their agreement involved doing something dishonest, like misrepresenting or making false promises. <li>
-'''Likelihood of loss''': That there was a likelihood of resulting loss or disadvantage even if no loss ever occurred.</ol>
-These are the legal principles. Their application, it seems to this old commercial hack, demands marrying the facts — who did what to whom — to their specific legal meanings as “terms of legal art”.
-Was Hayes ''dishonest'' when he submitted his LIBOR rates? That, in turn, came down to whether he “deliberately disregarded the proper basis for the submission of those rates”, intending thereby to prejudice the economic interests of others.
+Since banks ''borrow'' in floating and ''lend'' in fixed, they have “''structural'' interest rate risk”. It is a natural function of how banks work. They want floating rates to be low, and to move lower.  If they don’t manage this risk, things can get funky, fast. Just ask [[Silicon Valley Bank]].
-Whether the submissions were dishonest came down, so thought the court, to whether they conformed to the “Instructions to BBA LIBOR Contributor Banks” in the BBA’s “The BBA Libor Fixing – Definition” document. The critical part of the instructions — what the court calls the “LIBOR Definition” ran as follows:
-{{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.”}}
-====Facts and law====
-{{drop|N|ow, US Courts}}, in acquitting Connolly and Black,<ref>{{citer|United States|Connolly and Black|2d Cir. 2022|No. 19-3806|}}</ref> had considered the question before them to be one of ''fact'': the text of the “LIBOR Definition” as filtered through the prisms of grammar, usage, subject matter expert opinion and industry practice. This question of law — whether it was dishonest — depended a great deal on matters of ''fact'' — what did Hayes believe the LIBOR Definition required, and if that seemed far-fetched, what a reasonable person reading the definition would think it required.
-The English court considered it to be purely a question of ''law'': if the interpretation of a (quasi) contractual term is not “a question of law,” then what is?
+So knowing what that floating rate is, and managing it, is an important risk management function for the bank. A risk well managed is called a “return”. The floating rate is different from the central bank’s base rate, and moves daily in response to market conditions.
-====Crimes and contracts====
+Where does this “floating rate” come from, then?
-{{Drop|N|or should we}} forget the “legal question” to be answered here is one of criminal law, not contract.
-Under the intellectual theory of criminal law, ignorance or misunderstanding of the law is no excuse. This is axiomatic for an effective criminal justice system, the same way “all interests in cash pass by delivery” is to finance. The system would not work if it were otherwise: unlike contract law, it has no natural equilibrium. ''Ignorantia legis non excusat'', if you are blameless in your inadvertebce, is a moral iniquity but still a logical imperative of government.
+In the good old days, each bank worked out its own floating rates based on its own models, funding costs and market positioning. This process was neither transparent nor standardised. Rates could vary significantly between similar banks. As long as interest rates were not tradable instruments, this did not much matter to banks: they just told their customers what the floating rate was each day, and that was that.
-The same imperative does not hold for a contract. ''Au contraire''; the whole theory of contract is that the parties are fully cognisant of the whole thing. That is what offer and acceptance requires. The rules of contractual interpretation have forged a different path:
+In the early nineteen eighties, some [[First Men|bright sparks]] at [[Salomon Brothers]] figured out how to make interest rates into a tradable instrument. To standardise that instrument, the banks realised they would need a common way of describing how their interest rates change through time. A “benchmark”.
-{{quote|
+==== Chess club ====
-Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. [...] '''The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include'''. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
+{{Drop|E|nter the}} the [[British Bankers’ Association]]. This was just the sleepy, city-grandees-in-a-smoke-filled-gentlemen’s-club-in-Threadneedle-Street of your imagination. It began to compile what it called the “London Interbank Offered Rate” — “[[LIBOR]]”. This was to be an objective distillation of all the major banks’ borrowing rates.
-:—Lord Hoffman in {{cite|Investors Compensation Scheme Ltd|West Bromwich Building Society|1998|1 WLR|896}}}}
-A couple of observations: one: plainly, what a contract means is, in some way, fact-dependent. It is not, purely, a matter of law.
-Another is that how everyone else behaved when interacting with the same LIBOR Definition is instructive in determining what a reasonable person would have understood. There is no better indication of reasonableness that direct evidence of the actual belief of fellow passengers on the Clapham omnibus.
+The method the BBA chose to compile it was simple: it invited 18 major banks to
+literally, ''phone in'' what they believed they could borrow in various currencies and maturities in the market each day. The BBA would then compile the submissions, “trim” off the top and bottom four, average the rest and publish a set of daily LIBOR rates for each currency and maturity, before toddling off for a liquid lunch at the Garrick and their regular three o’clock tee time at Wentworth.
-That one was under a misapprehension goes only to mitigation and not liability, though — as we will see — in a market where plainly ''everyone'' shared an opinion, different from the judge’s one, about what the “LIBOR Definition” meant, this risks rendering the law “a ass”.
+You get the picture.
-There is also the odd spectre of the law of [[contract]] forming the backdrop, and comprising some of the elements of a criminal allegation. This is rare. Usually, the criminal authorities stay well out of commercial disputes, even where allegations of fraud are flying around — there is a civil tort of fraud — seeing it as a matter of civil loss between merchants perfectly able to look after themselves, and not one requiring the machinery of the state.
+With LIBOR published, the banks could then set their rates for call deposits, calculate suitable fixed rates for new term loans, and more importantly trade standardised interest rate instruments  by reference to the new LIBOR “benchmark”.
-[[LIBOR]], on whom the mortgage repayments of unwitting retail punters depend, made things a bit different.  This is no private matter to be sorted out between gentlemen with revolvers. But nonetheless, still one must apply contractual principles, not criminal ones, to matters of contractual practice.
+Happy, unadventurous stuff, carried out by happy, unadventurous people. Look: we don’t want to run the interest rate-setting crowd down, but before 2007, the LIBOR rate setting process was like the after-school chess club: snoresville. All the cool kids were out shagging, smoking weed and shorting structured credit. None of the hepcats paid much attention to LIBOR.
-====Everyone was at it====
+Now. It is one of JC’s [[Financial disasters roll of honour|axioms of financial scandal]] that [[Air crashes v financial crashes|''calumny happens where you least expect it'']]. This is because success in financial services is in large part about “[[edge]]”, and you generally only find an [[edge]] where no-one else is looking for it.
-A fun game, if you have twenty minutes, is to google the names of the {{plainlink|https://en.wikipedia.org/wiki/Libor|Seventeen LIBOR panel banks}} to see which of them were ''not'' somehow implicated in so-called “LIBOR rigging”.
-If you haven’t got twenty minutes, then the WSJ’s brilliant {{plainlink|https://graphics.wsj.com/libor-network/|spider network}} interactive graphic will give you the answer in an instant.
+==== The cool kids ====
+{{Drop|T|om Hayes was}} a cool kid (''metaphorically'': literally he has been described as “socially awkward”) but he hung out in the chess club. He, and a bunch of other groovers, found some [[edge]] there, where no one was looking for it. No one bothered them and they didn’t do a lot of harm — not, at least, that anyone has been since able to point to. But they sent each other lots of [[embarrassing emails]].
-''Everyone'' was at it.
+In any case, they made an effort to submit LIBOR rates that suited their derivatives trading positions and not, necessarily, their banks’ structural interest rate positions.
-Either (a) there was a colossal conspiracy at which everyone was trying to rip off the general public for personal gain and, since their efforts would naturally cancel each other out, probably failing or (b) ''this is how everyone understood to the LIBOR system to work''. It might not be edifying, but employees have fiduciary obligations to their shareholders, and if everyone acts according to those fiduciary obligations — or even their own personal self interests — the selfishness cancels itself out. This is ''exactly'' the logic of Adam Smith’s [[Free market|invisible hand]].
+That this all came to light as a result of the unrelated “lowballing” scandal, after which lots of people began looking very hard at LIBOR, and not liking what they saw.
-Now, seeing as the different desks and functions of a universal bank borrow in different markets, from different counterparties and in different circumstances, clearly, there will be no single unitary rate that the market will offer. The submitter will be confronted with a range of rates. Plainly it would be odd to submit a rate that was completely ''outside'' that range, but each of those rates counts as “''a'' rate at which it could borrow funds”.
+Another one of JC’s axioms: [[If you like sausages, don’t work in a smallgoods factory|''if you like sausages, don’t work in a smallgoods factory'']].
-The judgment interpreted that as the ''lowest'' of the submitted rates in the range.
+As per the “basic banking model”, to manage its structural interest rate risk, a bank ''generally'' would want LIBOR to be low. But deposits are not the only show in town — there are other exposures to the interest rate market: notably, the new tradable instruments: [[interest rate swap]]s.
-{{Quote|In the LIBOR Definition what is required is an assessment of the rate at which the panel bank “could borrow”.  ''That must mean the cheapest rate at which it could borrow''.  A borrower “can” always borrow at a higher rate than the lowest on offer.  But the higher rate would not reflect what the LIBOR benchmark is seeking to achieve, namely identification of the bank’s cost of borrowing in the wholesale cash market at the relevant moment of time.  If in a stable and liquid market a submitting bank seeks and receives offers for a reasonable market size at the very time it is to make its submission, and receives offers ranging from 2.50% to 2.53%, it would accept the offer at 2.50%. It would be absurd to suggest that the LIBOR question could then properly be answered by a submission of 2.53%. The bank “could” borrow at that rate in the sense that it was a rate which was available, but that is obviously not what “could” means.}}
+==== Interest rate swaps ====
+{{Drop|I|n an interest}} rate swap, the bank “swaps” interest rates with individual counterparties: it might, for an agreed period, pay one counterparty a fixed rate and receive from it a floating rate; with another it might pay floating and receive fixed.
-There is some economic logic to this argument, though it seems a brutal grounds for sending someone to prison for 14 years given how easy it would have been for those drafting the LIBOR rules to have put the matter beyond any doubt: namely, by inserting the word “lowest”:
+Before the advent of swaps, the only way of getting exposure to interest rates was by borrowing and lending principal. This required a lot of money down.<ref>It is a [[a swap as a loan|misconception]] that interest rate swaps do not involve principal borrowing and lending, but that is a story for another day</ref> Interest rate swaps got popular, fast. There are now trillions of dollars in notional interest rate swaps outstanding on any day.
-{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute the ''lowest'' rate at which it could borrow funds ...}}
+Unlike basic banking, there is no structural bias to swap trading. If a bank swaps a five-year fixed rate for a five-year floating rate, and LIBOR then goes up, by definition the bank profits: the “[[present value]]” of its incoming floating rate will increase while the [[present value]]  of its outgoing fixed rate stays the same. The dealer is therefore “[[in-the-money]]”. If it swapped floating for fixed in the same case, it would book a corresponding loss.
-And the argument here is not about economic reality, but legal meaning, and legal meaning follows natural, ordinary meanings, and in the world of contractual interpretation, they tend to be construed from the perspective of the person endeavouring to perform the contract and [[Contra proferentem|against the draftsperson’s interest]], giving the benefit of the doubt to the reader.
+While banks try to balance their books so their portfolio of customer swaps offset each other as far as possible, how they “position” the book might help manage the bank’s ''structural'' interest rate risk.
-As a matter of plain English, the court openly concedes that “could” does not logically rule out a higher rate, but implies it: “a borrower ''can'' always borrow at a higher rate than the lowest one on offer”.
+Under the “basic banking model”, a bank will always be “[[Axe|axed]]” for floating rates to be as low as possible. You would expect a basic bank’s LIBOR submissions to reflect that. But a swap trader who is “long” floating rates will wish floating rates to go ''higher''.
-But — per the wording in the LIBOR definition — there is not an unlimited upper bound to that: it is delimited by the range of “inter-bank offers in reasonable market size just prior to 1100”.
+This prospect, we venture, was not wildly present in the minds of the Sir Bufton Tuftons who formulated the LIBOR rules that defined how submitting banks should choose the rates they submit each day.
-A submitted could not submit a rate higher than that actually offered range any more than it could submit a rate lower than the actually offered range.
+The question arose later, even though it did not arise then: when submitting a rate, what account, if any, may a bank take of its own derivatives trading book?
+==== The LIBOR Definition====
+{{drop|T|he [[UK Finance|BBA]]’s guidance}} came in the form of “Instructions to BBA LIBOR Contributor Banks”. The critical part of these — what the court called the “LIBOR Definition” — ran as follows:
-To conclude this “could” does not mean that, therefore, involves ''implying'' a term into the contract. Inserting an adjective that the drafters of the rules could easily have included ''but chose not to''.
+{{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.”}}
-Evidence was not led as to how the rules were drafted, and what flexibility the British Bankers’ Association had in mind. and after all, history has borne out that, sometimes, there are times where Banks and their regulators are rightly motivated by considerations other than the actual (lowest) rate at which one could borrow.
+On any day there will 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, by the way: “''were'' it to do so” implies that that a submitting bank need not ''actually'' do so.
-It is not often JC favours a US interpretation of things, but consider this from {{casenote|United States|Connolly and Black}}:
+Say the range of available rates a bank sees on a given day is between 2.50% and 2.53%. Which of these is “''the'' rate at which it could borrow funds”? You can only choose one.
-{{quote|
-The precise hypothetical question to which the LIBOR submitters were responding was at what interest rate “could” DB borrow a typical amount of cash if it were to seek interbank offers and were to accept. ''If the rate submitted is one that the bank could request, be offered, and accept, the submission, irrespective of its motivation, would not be false''.}}
+Setting aside for a moment compliance with the LIBOR Definition, the possible avenues open to a bank in submitting a rate are:
+''Pick an “available” rate'': Choose one of the rates from the range, as above.
+''Manufacture a blended rate from the range'':  Contrive some artificial rate from within that range, reflecting a median, a weighted average, or some such thing.
+''Make one up'': Submit a rate that did not fall within the estimated range, whether lower or higher.
+“Making one up” plainly falls outside the scope of the LIBOR Definition. “Making a blended rate” does not quite conform to its text, but perhaps captures its spirit.
+To an uncomplicated reading, “picking one of the available rates” seems to fall squarely ''within'' the LIBOR Definition. This was a rate at which the bank ''could'' borrow funds.
+This is what Hayes did. The complication is that he actively selected the available rate that best suited his or, in some cases, competitors’ derivative trading positions. That is, he was guided by his own commercial interests, and not the “structural” interests of a hypothetical basic bank.
+This is the crux of the case: was this ulterior motive ''dishonest'' in light of the “''proper basis for the submission of those rates''”? The Crown alleged it was.
 {{sa}}
+*[[LIBOR rigging part 2]]
+*[[Interest rate swap mis-selling scandal]]
 *[[Contract]]
 *[[LIBOR]]
 {{ref}}