Libor Scandal Still Shaking the Financial World
The Libor financial scandal has been bumped from the headlines, but governments and regulators around the world are reacting through regulations and legislation that will reshape Libor and how rates are set. Investigations into banks and criticism of public officials also continue.
In London, proposals aim to add more regulations and outlaw rate manipulation, taking rate-setting oversight from the British Bankers Association. In the United States, two Senate Republicans–Chuck Grassley and Mark Kirk–are criticizing Treasury Secretary Timothy Geithner for not doing enough to stop the rate-fixing crisis or warning the public. They also blame Geithner for the multi-billion dollar class-action lawsuits created by the scandal.
The Libor scandal is far reaching for both consumers and financial institutions. Consumers may have had their interest rates on mortgages, student loans and even credit cards affected by this controversy.
The name London Interbank Offered Rate (Libor) is geographically misleading. It is simply the interest rate that banks around the world charge to lend to each other. It is computed in London but used as a global benchmark for interest rates, and, according to some analysts, has affected more than $360 trillion in financial products.
Libor is the interest rate that banks around the world charge to lend to each other, including three American institutions: Bank of America, Citigroup and JPMorgan Chase. A daily survey in London calculates Libor by averaging the rates these banks think they would have to pay to borrow from other banks. The banks, not the market or the government, set the rate. Some credit card, mortgage, student loan, auto loan, and business loan interest rates, as well as some financial products such as derivatives, are based on Libor.
A rigged Libor rate means that millions of people around the world might have unknowingly paid more or less interest than they should have.
About Natalie Rutledge
Natalie Rutledge majored in Communications at Mississippi State University. She was in sales for a number of businesses and spent nine years working as a communications advisor to various entities. Natalie can be contacted directly at [email protected]