Page 35 - Bank Case Studies

However, a small shift in basis

point rates (a basis point, is equal

to one one-hundredth of a
percentage point- 0.01 ) would

result in substantial financial

gains. Therefore, the overall goal,
of such rate rigging behaviour

was the increased profit a bank could make by even a small basis
point change in these rates and given the enormous financial

products linked to these rates (see appendix 2) it is easy to

appreciate the incentive to manipulate them.

Barclays manipulated rates for at least two reasons. From as early as

2005, traders sought particular rate submissions to benefit their

financial positions. Then, during the 2007–2012 global financial crisis,
they artificially lowered rate submissions to make their bank seem

healthy. The mortgage crisis in the US had caused banks and

investment funds globally to become nervous about lending to each
other without collateral. Consequently, firms that relied on money

markets to fund their businesses were paralyzed by the inflating cost
of short-term credit.

Traders and interest rate submitters of different banks from the

Libor and Euribor panel requested several favours of each other
verbally, by email and instant messaging. For example, to keep the

Libor rate for a specified currency and maturity low, or at a certain

level e.g. swaps traders often asked the Barclays employees who
submitted the rates to provide figures that would benefit the

traders, instead of submitting the rates the bank would actually
pay to borrow money.