
Libor: Bank of England implicated in secret recording - iamben
http://www.bbc.co.uk/news/business-39548313
======
Lazare
It's not really news; it's always been clear that:

1\. The Bank of England knew about the Libor rigging as it happened

2\. And was, _at a minimum_ , very happy with the results (given that it
reduced the risk of bank runs imperiling the entire system)

3\. And that nobody involved really thought this was a serious issue, much
less a crime.

Putting the above together, it would be surprising if there wasn't some
pressure from the Bank of England to push Libor down; why wouldn't they be
doing that? In the circumstances, it would have practically been remiss of
them to do otherwise.

Of course, it looks absolutely horrific now that we've decided that
manipulating Libor is a serious issue that people should go to prison for!

~~~
futun
> "3\. And that nobody involved really thought this was a serious issue, much
> less a crime."

I'm not sure where that point came from. It's not only a crime, it's an
extremely serious crime. What on Earth are you talking about?

LIBOR is a derivative of daily rate data which is shared between banks. It is
not rigged centrally.

You can't tell investors that the rate is based on a daily measurement of
interbank risk, and then just go ahead and base that rate on something
entirely different when it suits you. That's called fraud.

~~~
Lazare
> It's not only a crime, it's an extremely serious crime. What on Earth are
> you talking about?

Today it is. Back then it wasn't. (Or rather, it wasn't seen as such.) It was,
by definition, a number that people made up based on their gut feeling (NOT
hard data), and there was no regulation or precedent for what sort of number
you could make up.

Notice that in the linked article, the Bank of England carefully doesn't deny
putting pressure on banks to keep Libor low, and just says that: ""

Or see the article I linked elsewhere in the thread about Barclay's who was
perfectly open with analysts and regulators that they were lying about Libor
to improve their share price: [http://dealbreaker.com/2012/07/same-old-boring-
story/](http://dealbreaker.com/2012/07/same-old-boring-story/)

Yes, we see it as a serious crime now, but it's pretty clear that circa
2007-2008, that was not a common view.

> LIBOR is a derivative of daily rate data which is shared between banks [...]
> You can't tell investors that the rate is based on a daily measurement of
> interbank risk

It's neither of those things, and I certainly _hope_ investors weren't being
told that, because that would be a lie. It's literally the result of asking
some banks, "hey, if you went and borrowed some money...how much do you reckon
you'd get charged?". And it turns out that's horribly subjective, not very
useful, and prone to manipulation!

~~~
jnordwick
That people think LIBOR is some objectively calculated rate is probably an
even bigger lie than LIBOR itself. How did that view come about, poor
financial reporting?

~~~
tialaramex
The calculations are objective, the input values are subjective.

ICE says they ask a particular bunch of people "If _your_ bank wants to borrow
money, how much does that cost?" and then they do a particular calculation to
turn all those inputs into LIBOR

90 days later we can see all the individual numbers, so we can check if ICE
did their job properly, and also we can see if, say, Lloyds have been
ridiculously low-balling their numbers every Tuesday.

Because the question is subjective, that's still subject to bias, in
particular it makes an unspecified assumption: that the bank asked could in
fact secure such a loan because it's available to them if they wanted it. As a
result loss of liquidity in parts of the market is not visible through LIBOR
even with reforms.

~~~
jnordwick
There seems to be a pattern lately of people replying to comments assuming the
poster doesn't know anything. It is getting really annoying. Pro tip: many of
us here work in finance or related fields. It is like people are just itching
to show how much they know.

------
fanzhang
There is no recording of any BoE official asking Libor to be changed, which I
had partially expected.

Instead, a Barclay employee is on record saying: "The bottom line is you're
going to absolutely hate this... but we've had some very serious pressure from
the UK government and the Bank of England about pushing our Libors lower."

This is the equivalent of hearsay evidence, and how Dearlove brought up the
BoE only illustratively further distances the BoE.

Also, the manager just says they had pressure for lower BoE rates -- but
charitably read, the BoE may have meant through actually lending at lower
rates and trusting your fellow banks. After all ensuring trust in the banking
system is a core BoE function. Your parents might pressure you to get better
grades, but often they don't intend cheating.

Now does is this evidence that the UK government wanted Libor rates lower --
sure. Does it increase the chances the BoE encouraged the manipulation --
probably. But is it a smoking gun where the BoE explicitly instructs
manipulation? Far from.

~~~
raesene6
Well they'd have to be pretty stupid to put it in writing, given that it was
against the rules.

It seems to me a shame that people lower down the chain, who didn't stand to
personally profit from the manipulation are going to be the only ones to take
the fall for this. The suggestion that the rate fixer acted independently to
manipulate the rates, even though he will have known that he risked
prosecution as a result, just isn't credible to me.

It's obvious that general banks + BoE colluded to fix a rate that was _meant_
to be based on the realities of lending, and that they did so either to make
more money (in the case of the general banks) or to instill confidence in the
banking system (in the case of BoE).

Whilst there may not be enough evidence to prosecute, it seems wishful
thinking to say that the BoE didn't know that people might take their wishes
and translate them into effectively illegal actions.

The point of Libor was that it was _meant_ to be a reflection of bank's actual
rates, so any pressure for lower rates inevitably is pressure to cook the
books, and the BoE staff involved will have known that.

~~~
K9-Mumbai
"It seems to me a shame that people lower down the chain, who didn't stand to
personally profit from the manipulation are going to be the only ones to take
the fall for this."

The point is now that its clear that the people who have been arrested are not
to blame - what happens next? They rot in jail while years pass while the
country and the SFO and the courts debate on who was really to blame!?

------
bboreham
This is, broadly speaking, the same story that came out in 2012:

"Barclays Submitters believed mistakenly that they were operating under an
instruction from the Bank of England (as conveyed by senior management) to
reduce Barclays' LIBOR submissions"

[https://www.publications.parliament.uk/pa/cm201213/cmselect/...](https://www.publications.parliament.uk/pa/cm201213/cmselect/cmtreasy/481/48106.htm)

Whether this belief was "mistaken" seems a matter of opinion, since no
evidence has surfaced of what was actually said.

------
tici_88
Back in my Econ classes we were taught that Libor was this atomic-clock-like
gauge that objectively and impartially measures interest rates with absolute
precision. Turns out that isn't exactly the case.

We know that some commercial banks that participated in rigging it - the
article mentions about employees of Barclays who and got caught, convicted and
jailed for rigging Libor. But if the Bank of England has exerted pressure one
way or another on Libor the claim that it is a a 'precise' interest rate gauge
determined by the 'free market' are starting to look increasingly more
questionable.

~~~
scatters
Yes, and in high school chemistry you were taught that electrons go round the
atomic nucleus in orbitals. The real scandal here is the poor state of
undergraduate education in economics.

~~~
kitsune_
Back in high school, our chemistry teacher explicitly told us that this is
nothing but a model and that all models are approximations. At the same time
our economics teacher argued that rational self-interest is the undiluted
essence of human behaviour.

~~~
CamelCaseName
Your kindergarten teacher probably told you that the number after 1 is 2. How
stupid of them not to know that you can also have 1.1!

You can't hop in the deep end when you start learning a new subject.

If you continue in Economics you will deal with models that consider
irrational actors.

~~~
kitsune_
Deep end? I tried to illustrate that one teacher made the effort to highlight
a model's shortcomings while the other one couldn't see beyond his own
ideological biases.

------
sid-kap
Is the US the only state whose federal bank (the Fed) controls the inter-bank
lending rate (called the federal funds rate in the US)? What are the pros and
cons of the Bank of England not setting Libor in the same way?

~~~
arkis22
I could be wrong. But I think that the two rates serve slightly different
purposes.

The federal funds rate is an overnight rate for one. And I'm sure that
American banks sometimes use libor for setting rates on securities.

I would be surprised if the Euro didn't have something that was closer to the
federal funds rate than libor.

~~~
gergoerdi
I guess that would be the Eonia:

"Eonia reference rates are calculated by the European Central Bank, based on
all overnight interbank assets"

[https://en.wikipedia.org/wiki/Eonia](https://en.wikipedia.org/wiki/Eonia)

~~~
cm2187
EUR: EONIA

GBP: SONIA

------
jgalt212
There were those manipulating Libor to prevent bank runs (somewhat defensible)
and those manipulating Libor for self gain (not defensible).

Both manipulations went straight to the top and thus far, as expected, only
mid-level operators have been held accountable.

