LIBOR Scandal Reverberates across Financial Markets... - Other News

ADVERTISING DISCLOSURE

ADVERTISING DISCLOSURE:
Credit-Land.com is an independent, advertising-supported web site. Credit-Land.com receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. Credit-Land.com has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » News » Other » LIBOR Scandal Reverberates across Financial Markets & Big Banks

LIBOR Scandal Reverberates across Financial Markets & Big Banks

The content is accurate at the time of publication and is subject to change.
This content is not provided by Citi. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Citi.

Those of us who day trade, invest, or do financial services for a living have most likely heard of the LIBOR (London Interbank Offered Rate). It is a measure of the cost of borrowing between banks that serves as a benchmark for over $350 trillion worth of financial products worldwide. “If you move it even a little bit, it can cause massive redistribution of resources because it’s so extensively used,” said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business and a former economist with the Federal Trade Commission. The LIBOR & TIBOR (Tokyo Interbank Offered Rate), are considered the two major benchmarks of international trading, considering that London, Tokyo, and New York are the three largest by-volume foreign exchange markets.

There is a Chicago mercantile exchange trading firm known as Eldorado, LLC that has filed a lawsuit against Citibank, Bank of America, JP Morgan, UBS & Citigroup, accusing the big banks of conspiring to manipulate the LIBOR rate. This case, Eldorado Trading Group LLC v. Bank of America Corp., 11-cv-3847, U.S. District Court, District of New Jersey (Newark), has been ongoing since July 2011 and has produced no definitive lawsuit as of yet.

The lawsuit claims employees of all the major banks in question not only initiated contact amongst themselves to establish trades they believed would change the rate, but subsequently put trades into motion that would result in company or individual benefits once the rate had been changed. The banks “had a substantial incentive to manipulate, and in fact did manipulate, Libor downward, in order to increase the income from its interest rate derivatives and similar instruments,” according to Eldorado`s complaint. “This manipulation resulted in billions of dollars in revenue.” Surprisingly, El Dorado does not have any press releases on its website offering reasoning & motivations behind the probe, which representatives of all the major banks involved continue to deny involvement in.

If you`ll remember, in 2011 UBS lost over $2 billion due to a rogue trader at their London office. With this scandal in the recent past, banks are very wary of people trying to falsely accuse them of fraud & insider trading. The climate is ripe for these kinds of investigations, and Eldorado is more than willing to collect.

In Tokyo, a similar probe targeted an ex-Citigroup trader& his partner of tampering with the TIBOR rate, which is similarly influential amongst international traders. Now, some UBS and CITI transactions have been suspended in Tokyo as a result of the alleged rate tampering. In the US, similar repercussions could take place once the repercussions of the El Dorado probe are revealed.

If interest rates are tampered with internationally, it could result in the loss of trust between banks & traders, and similar suspensions of trading operations, eliminating the idea of trust between consumers and the big banks they invest in. For Citigroup & UBS especially, the involvement in the TIBOR scandal combined with LIBOR allegations have resulted in a severe breach of consumer trust.

Whether suspensions & jail time of suspected employees will result is yet to be seen. Either way, even the suspicion of employee tampering with one of the world`s biggest economic benchmarks is detrimental to the trust between banks and their consumers.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:

Related News:

Financial Brands Make Gains in 2013
Financial Brands Make Gains in 2013

Posted: October 14, 2013

Consumer confidence in financial companies is on the rise, according to the Best Global Brands report. Eight of the eleven financial entities in the study published by Interbrand showed significant gains in popularity and value. Continue reading
Major Card Issuers Support Digital Tokens
Major Card Issuers Support Digital Tokens

Posted: October 15, 2013

In the future it may be easier and safer for consumers to make purchases online whether paying for a latte with a smartphone app or buying a pair of sneakers online. MasterCard, Visa and American Express are advocating the use of digital... Continue reading
American Express Making it Easier to Resolve Transaction Disputes

Posted: October 19, 2018

Have you ever noticed a strange charge on your credit card statement, and then called up to find out what it was, only to get frustrated by the lack of information available? If so you may well be happy to learn that American Express has ... Continue reading
Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com, or wholesale clubs up to the quarterly maximum each time you activate.
For Excellent, Good Credit
INTRO OFFER: Discover will match ALL the Miles you've earned at the end of your first year, automatically. For example, if you earn 30,000 Miles, you get 60,000 Miles. That's $600 towards travel!
For Excellent, Good Credit
Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay
For Excellent, Good Credit
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!