The Libor Scandal
The Story
The London Interbank Offered Rate (LIBOR) is a benchmark interest rate that affects trillions in loans and derivatives worldwide. Traders at multiple banks colluded to manipulate this rate to benefit their trading positions. Sometimes they submitted false rates; other times they bribed rate-setters at other banks. The scandal revealed that one of the most important numbers in global finance was fundamentally corrupt.
🚩 Red Flags
- Unexplained rate movements that benefited specific traders
- Chat messages showing explicit coordination between banks
- Traders submitting rates that didn't reflect actual borrowing costs
- Culture of casual corruption in trading desks
- Lack of regulatory oversight of the rate-setting process
⚖️ The Fallout
Massive fines totaling over $9 billion for involved banks. Barclays CEO Bob Diamond resigned. Several traders received prison sentences. The scandal led to the complete overhaul of how benchmark rates are set globally.
📚 Lessons Learned
When a system relies on trust and self-reporting without verification, it's vulnerable to manipulation. Revealed the deeply embedded corrupt culture in parts of the banking industry.
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