Barclay and LIBOR Case Solution
LIBOR stands for London Interbank Offered Rate, and it is used to reflect the costs of unsecured funding on the open market, also is used by banks to lend money to one another.
Recently, it is taken by the (BBA) British Banker Association which resolves the issues related to LIBOR, and they have 200 bank members. According to the total assists; Barclays is considered as the largest sixth bank globally, which presents their separate rates to the (Thomson), that deals with the rates submitted and afterward made LIBOR rate by utilizing the procedure of managed mean. Barclay’s retail system was one of the best systems in the U.K. as it was rated number one because of its deposits and the analysis of operations independently (Clayton S. Rose and Aldo Sesia, 2013). By submitting inflated Labor estimates, the traders took use of their market position to influence rates. They also adjusted the prime lending rate in collaboration with other banks. The manipulation of LIBOR caused mortgage rates in the United States to rise.
Factors contributing to the manipulation of the LIBOR by individual traders are such as, many banks are compelled to understate their borrowing rates in order to maintain investor confidence. This isn’t so much about tampering with the LIBOR as it is about tampering with the public’s view of the bank’s financial health. The brashness of the actors was one of the primary reasons contributing to the manipulation of the LIBOR by individual traders.
LIBOR(London Interbank Offered Rate):
LIBOR stands for London Interbank Offered Rate, which is known to represent the charges of funding that are unsecured in an open market. It is used by the largest financial organizations. The US. Federal Reserves, European Bank, and the England Bank are the main central banks that fix the lending rate or base rate, periodically.
Uses of LIBOR:
LIBOR is taken as a standard rate of interest on the basis of which the banks borrow money from one-another. Later, this rate is set as the interest rate charged from customers. As a base rate, LIBOR is used by many services like customer lending products, student loans and credit cards.
Minos Zomba is is the founder of LIBOR who first introduced this concept. It is a crucial indicator that decides the financial soundness and the bank’s liquidity. The subordinates exchanged over the OTC market, and trade from all over the globe were chosen on the premise of LIBOR.
Ethical problems with the first phase of LIBOR manipulation/scandal in England from 2005 to 2009
This scandal was unethical because it brings into losses to consumers, who were the victim of this scandal. After all, they had to pay the higher interest rate on loans. Even the banking system lost consumer trust and credibility. Because it was a zero-sum game in which the loser was the consumers. The senior management of Barclay was involved in this scam. So it was an intentional step in falsifying the LIBOR rate because both parties do this with intentions.
Barclays conceded that it has controlled the LIBOR; the interest rate benchmark that was basic to the activity of global monetary markets and that was the reason for trillions of dollars of monetary exchanges. In between 2005-2009, the most important bank in the world, controlled or manipulated the LIBOR for the reason of gaining profits and minimizing the losses related to trades.
Barclays made the untruest worthily low LIBOR rate to hose the market dynamics and media’s negative remarks about the company’s reason-ability during the monetary crises. The firm pays around 450 million dollars fine to settle with the regulators of the U.K. and the U.S. CEO of Barclays resign from the post under the pressure of higher authorities of British.Diamond Robert faulted a few representatives for the subsidiary exchanging related LIBOR rate infringement and named their activities as “indefensible.”Concerning gear the rates of LIBOR to restrict the market and media hypothesis of firm’s financial reason ability, Robert refused to accept any wrongdoing and contended, that all things considered, the firm was fair in its entries of LIBOR in comparison to other banks-addressing.Whereby other banks that were disturbed,were later incompletely nationalized so they could borrow the money at a lower rate than the Barclays bank.
So this analysis of the case is about the LIBOR’s essential part in the financial markets globally, how it runs the LIBOR by making mechanism in establishing the rate, and what did Barclays do wrong to financial institutes. The case takes into account the assessment of 1) the results of abusing the trust of market members, 2) leadership and cultural blemishes at Barclays bank, 3) challenge of adequately contending in a market were foundational, and generally comprehended, corruption is occurring, 3) problems faced by the regulators in sustaining the market with the corrupt framework and 4) what effective solutions or remedies can be or might not be for the LIBOR rate flaws. These points are supposed to be analyzed in this case from a very broader perspective.
Submitters manipulated the LIBOR
Role of Barclay in the first phase of LIBOR manipulation/scandal in England from 2005 to 2009
The submitters sometimes try to manipulate LIBOR rate with the help of traders such as they as derivative traders were asked to pass on the request to firm own submitters in this way influences the submission of other banks. However, traders also involve their colleagues in altering the LIBOR rate by passing on the request to the submitters of Barclay. There will be profit for the traders in the LIBOR rate is low so try to manipulate the LIBOR rate so that they can earn huge profits because from even one transaction they earn million dollars. As in the case of Barclay traders who were in charge of submitting LIBOR rates in new York by accepting the request sent by other traders through mail to manipulate LIBOR so that they could take a profitable position in the money market, for which they were asked to submit low LIBOR rate. So traders took benefit of LIBOR rate-rigging…………..
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.