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Thu Jul 5, 2012, 11:40 AM

"The LIBOR scandal will expose more naked bankers"

I was reading this article describing how the rate would be played with, but not really controlled

But what was also fun was the games that we used to play with the rate sets each morning at 10am – what are known as BBSW rates (Bank Bill Swap Rate) or Libor in other countries.

Basically if you had a position that needed a bit of enhancement you could try to move the price around in the run up to the rate set. You’d do this by buying or selling bank bills in the market in the run up to 10am to try to move the yield. More often than not you’d end up with one of the other big banks on the opposite side trying to bash you into submission so that they could get the price that suited their book.


The question he asks (and I'm curious about) is this one:

The question I am asking myself is how did Barclays manage to influence the whole market over an extended period in a manner that was material to their borrowing costs all on their own? It strikes me as almost impossible.

...

Just like we have seen in past periods of market turmoil, they are often associated with behaviour that is either illegal or with the benefit of hindsight deemed immoral. My guess is that there is more to this scandal than meets the eye and that this will not be the only market where manipulation of price for short term interest rates or bonds will be exposed.


Anyone have any thoughts? Was there no one on the other side pushing back?

What else might have been going on that allowed this?

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