LIBOR Scandal

AAA

DEFINITION of 'LIBOR Scandal'

A scandal peaking in 2008, in which financial institutions were accused of fixing the London Interbank Offered Rate (LIBOR). The LIBOR scandal involved bankers from various financial institutions providing information on the interest rates they would use to calculate LIBOR. Evidence suggests that this collusion had been active since at least 2005.

INVESTOPEDIA EXPLAINS 'LIBOR Scandal'

LIBOR is an important interest rate when it comes to global finance. It is used to determine the price that businesses pay for loans and individuals pay for mortgages, and is also used in derivative pricing. The rate is supposed to represent the interest rate that a bank pays to borrow from another bank. The scandal involved banks understating the interest rate, which in aggregate, could keep the LIBOR rate artificially low.

LIBOR is also used as an indicator of a bank’s health, and the manipulation of the rate leading up to the 2007-2008 financial crisis made some financial institutions appear stronger than they actually were.

The brashness of bankers involved in the scandal became evident as emails and phone records were released during investigations. Evidence showed traders openly asking others to set rates at a specific amount so that a position would be profitable. Regulators in both the United States and United Kingdom levied millions of dollars in fines on banks involved in the scandal. Because LIBOR is used in the pricing of many financial instruments, corporations and governments have also filed lawsuits alleging that the rate fixing negatively affected them.

RELATED TERMS
  1. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  2. Remote Deposit Capture

    A technology-based method that lets banks accept checks for deposit ...
  3. Negative Interest Rate Policy (NIRP)

    A negative interest rate policy (NIRP) is an unconventional monetary ...
  4. UDAAP

    Misleading or harmful behaviors by those who offer financial ...
  5. Military Bank

    A financial institution that offers services tailored to members ...
  6. Automatic Bill Payment

    A money transfer scheduled on a predetermined date to pay a recurring ...
RELATED FAQS
  1. Why is LIBOR sometimes referred to as LIBOR ICE?

    The ICE LIBOR (previously known as BBA LIBOR) is a standard rate using an average of the rate at which a contributing panel ... Read Full Answer >>
  2. Where on the internet can I find LIBOR rate information?

    The London Interbank Offered Rate, or LIBOR, is charged by individual contributor banks for loans; it is calculated using ... Read Full Answer >>
  3. How is Libor determined?

    Libor is the major rate used to price debt stock. Libor is actually a set of several benchmarks that reflect the average ... Read Full Answer >>
Related Articles
  1. Investing Basics

    The Insiders Who Fix Rates for Gold, Currencies And Libor

    The system by which benchmark rates are fixed for interest rates, currencies and gold is archaic - and, many would argue, deeply flawed.
  2. Personal Finance

    The True Cost Of Pharmaceutical Scandals

    "Big Pharma" has faced many scandals. Here are some of the biggest and the fines that resulted.
  3. Investing News

    The LIBOR Scandal

    Barclays and other banks are alleged to have submitted artificially low LIBOR rates between 2007 and 2009.
  4. Personal Finance

    Top Financial Scandals Of 2010

    These financial scandals dominated headlines, and changed the way we look at the market, in 2010.
  5. Personal Finance

    Wall Street History: Panics, Scandals And Rogue Traders (Oh My!)

    This week chronicles the heroics of J.P. Morgan, a classic embargo battle, the first of Wall Streets' dark days and much more.
  6. Personal Finance

    Water Cooler Finance: History's Biggest Rogue Trading Scandal

    This week in finance the economy falters and the markets stay hopeful, a $6 billion fine is imposed and Google joins the TV biz.
  7. Options & Futures

    An Introduction To LIBOR

    This influential rate is published daily in Britain, and felt all around the world.
  8. Economics

    What’s Driving U.S. Stocks? Irony.

    A seesaw week for U.S. stocks ended on the upside last week, though the rally was more a function of slow growth rather than a booming economy.
  9. Personal Finance

    4 Tips To Cut Your Monthly Bank Fees

    We asked banking professions to share their biggest tips for tackling bank fees, and hopefully save more even before spring hits.
  10. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center