A financial scandal is clouding over London and making headlines. It all starts with the LIBOR (London Interbank Offered Rate). This number is an interest rate that affects about $400 trillion worth of contracts worldwide. Many mortgages in America are in part calculated using the LIBOR interest rate. To create the LIBOR, the British Bankers Association sends out a survey asking London banks what their interest rate would be if they borrowed from other banks. This simple question and answer forms the basis for what could be called one of the most important interest rate benchmarks in the world. The problem? For the past 5 years (and possibly longer!) the rate has been deliberately manipulated by British Bankers.
It turns out that the banks would self-report lower or higher interest rates in order to manipulate the LIBOR for financial gain. Barclays was recently fined $450 million for their part in “fixing” their reported rates. In emails unearthed from Barclays’ archives some traders promised bottles of Champagne to those who did their dirty work of fixing rates. Needless to say, this scandal has been a PR nightmare for Barclays. Their CEO and COO have both resigned from the company leaving them without a competent figurehead to guide their public presence. To combat their falling public credibility, Barclays has pointed to the other banks and their complicity in the scandal, as well as the failure of regulators. This has succeeded, and the media has greatly expanded their scope of coverage. It remains to be seen where this scandal will end, as always stay tuned for more coverage of this reputational mess.