Libor and Euribor Manipulation Scandal: A Summary

In a major financial investigation, 37 City traders were prosecuted for manipulating two of the world's most widely used interest rate benchmarks, Libor (London Interbank Offered Rate) and Euribor (Euro Interbank Offered Rate). The scandal, which came to light in 2012, exposed widespread manipulation and corruption in the financial markets, causing significant damage to the integrity of the global banking system.

What is Libor and Euribor?

Libor and Euribor are benchmark interest rates that serve as the foundation for a significant portion of the world's short-term borrowing. They are used to determine the interest rates on trillions of dollars' worth of loans, credit cards, and other financial instruments.

• Libor: Libor is a London-based benchmark rate that reflects the average interest rate at which major banks and other financial institutions borrow from each other.
• Euribor: Euribor is an equivalent benchmark for the eurozone region, reflecting the average interest rate at which European banks lend to each other.

The Scandal

In 2012, a group of investors launched an investigation into allegations that several major banks and financial institutions were manipulating Libor and Euribor rates. The investigation revealed widespread manipulation and corruption, involving numerous traders, senior executives, and even regulators.

The key findings of the investigation included:

• Coordinated efforts: Traders and bankers worked together to manipulate Libor and Euribor rates, often in a coordinated and sophisticated manner.
• Fake trades: In some cases, traders created fake trades to create the illusion that they were lending or borrowing at certain interest rates, when in reality they were not doing so.
• Regulatory failure: The investigation found that regulators had failed to detect the manipulation, due to a combination of factors including inadequate oversight and the complexity of the financial markets.

Prosecutions

In response to the scandal, numerous traders and bankers were prosecuted for their roles in manipulating Libor and Euribor rates. In total, 37 City traders were charged with manipulating these benchmarks.

Some notable cases include:

• RBS: The Royal Bank of Scotland (RBS) was one of the banks most heavily implicated in the scandal, with several traders facing prosecution.
• UBS: UBS was also implicated in the scandal, with several traders and senior executives facing charges.
• Deutsche Bank: Deutsche Bank was another major bank that faced allegations of manipulation.

Consequences

The consequences of the Libor and Euribor manipulation scandal have been significant. Some of the key outcomes include:

• Regulatory reforms: In response to the scandal, regulatory bodies around the world have implemented new rules and guidelines aimed at preventing similar manipulation in the future.
• Financial penalties: Several banks and traders faced significant financial penalties as a result of their involvement in the scandal.
• Losses for investors: The scandal also resulted in losses for investors who were affected by the manipulated rates.

Lessons Learned

The Libor and Euribor manipulation scandal serves as a powerful reminder of the importance of transparency, accountability, and regulation in financial markets. Some key lessons learned from this scandal include:

• Importance of oversight: The investigation highlighted the need for adequate oversight and monitoring of financial markets to prevent similar manipulation.
• Need for transparency: The scandal emphasized the importance of transparency in financial markets, particularly with regard to benchmark rates.
• Regulatory reform: The scandal led to significant regulatory reforms aimed at preventing similar manipulation in the future.

In conclusion, the Libor and Euribor manipulation scandal was a major financial investigation that exposed widespread manipulation and corruption in the global banking system. The consequences of this scandal have been significant, with numerous traders and bankers facing prosecution and regulatory bodies implementing new rules and guidelines to prevent similar manipulation in the future.