LIBOR Scandel

econfix

You can’t not be aware of the Libor scandel that has been dominating the media in Europe over the last few days. So what is the LIBOR?

The London Interbank Offered Rate is the average interest rate charged by leading banks in London when lending to other banks. It is a benchmark, along with the *Euribor for interest rates all around the world. This includes more than £300 trillion (NZ$600 trillion) of financial products such as credit cards, mortgages, financial derivatives like CDO’s etc. In the run-up to the financial crisis, traders are said to have attempted to have attempted to manipulate the rates to boost their bonuses or protect their jobs. At the peak of the financial crisis, they artificially lowered rates to hide the stress on the banks’ balance sheets.

Dan Davies described the LIBOR as similar to credit ratings – started as a market tool, then had…

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