![]() The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them. Financial institution customers may experience higher and more volatile borrowing and hedging costs after implementation of the recommended reforms. Wheatley's review recommended that banks submitting rates to Libor must base them on actual inter-bank deposit market transactions and keep records of those transactions, that individual banks' LIBOR submissions be published after three months, and recommended criminal sanctions specifically for manipulation of benchmark interest rates. The British Bankers' Association (BBA) said on 25 September 2012 that it would transfer oversight of Libor to UK regulators, as predicted by bank analysts, proposed by Financial Services Authority managing director Martin Wheatley's independent review recommendations. On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue. Further reports on this have since come from the BBC and Reuters. On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991. Since mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide. īecause Libor is used in US derivatives markets, an attempt to manipulate Libor is an attempt to manipulate US derivatives markets, and thus a violation of American law. In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the scandal. The Libor is supposed to be the total assessment of the health of the financial system because if the banks being polled feel confident about the state of things, they report a low number and if the member banks feel a low degree of confidence in the financial system, they report a higher interest rate number. The banks are supposed to submit the actual interest rates they are paying, or would expect to pay, for borrowing from other banks. It is currently administered by Intercontinental Exchange (ICE), which took over running the Libor in January 2014. Libor underpins approximately $350 trillion in derivatives. The scandal arose when it was discovered in 2012 that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were. Libor is an average interest rate calculated through submissions of interest rates by major banks across the world. The Libor scandal was a series of fraudulent actions connected to the Libor (London Inter-bank Offered Rate) and also the resulting investigation and reaction. ![]() This dwarfs by orders of magnitude any financial scam in the history of markets.
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