It’s hard to see what is news about the latest Libor news but it exists so let’s paste it here:
Royal Bank of Scotland Group Plc managers condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank has fired.
In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed colleagues in the U.K. to lower RBS’s submission to the London interbank offered rate that day, according to two people with knowledge of the discussion. No reason was given in the message as to why he wanted a lower bid. The rate-setter agreed, submitting the number Mohideen sought, the people said.
One way to conceptualize Libor is that it’s the interest rate at which banks lend to each other on an unsecured basis. This is fine as far as it goes but late 2007 was farther than it went; by that point banks were skittish about unsecured lending and Mervyn King was already conceptualizing Libor as the interest rate at which banks don’t lend to each other. But of course there are lots of rates at which banks don’t lend to each other; 714.03% per annum is, for example, a perfectly good interest rate at which I will assert banks don’t lend to each other. So King’s formulation insufficiently specifies.
But that means you need a new concept! It just does; you can’t avoid it by saying “well just try harder to say what rate you borrow at when you don’t borrow.” How do you get the new concept? Beats me; the CFTC has listed factors that were kosher to consider and they include prior Libor submissions, actual and expected central bank decisions, and “research documents,” which are all, like, things you can look at, but which are none of them information about rates you can borrow at.1 Read more »