Lie bore

OK, let's have a quick primer on the latest banking scandal.

There's overnight LIBOR, one week LIBOR, one month LIBOR, three month LIBOR.  There's US dollar LIBOR.  There's Sterling LIBOR.    There's LIMEAN.  There's LIBID.  There's LUXIBOR. There's EURIBOR. 

These interbank rates are often described as "the rate at which banks lend each other money",  but that's not exactly right.  Each bank sets its own rate for interbank lending on a minute-by-minute basis.  Once a day, however,  sixteen large global banks tell the LIBOR compilers (Thomson Reuters) what their lending rate is on that day.  Reuters eliminates the high four and low four numbers and averages the rest to come up with the LIBOR rate, which it then publishes.  That rate is then used as a benchmark,  for example in calculating loan interest or pricing the floating rate side of interest rate swaps.

With so many banks on the panel, it isn't easy for any individual institution to manipulate the rate to its own advantage.  If you look at the e-mails that have been quoted in the Barclays case ("done for you , big boy") you find they were talking about shifting the rate by as little as a basis point (one hundredth of one percent). Moreover, again staying with Barclays, it appears that while the traders occasionally attempted to get the day's LIBOR setting nudged higher, there were also occasions when they tried to set it lower, in order to conceal the pressure on the bank's own funding costs at the height of the financial crisis.

Barclays shouldn't have done it, of course, but its actions scarcely merit the scandalised tone of much of the media coverage we've seen over the past couple of days. The FSA's report on its investigation is very nuanced: while asserting that the Bank's traders attempted to influence the LIBOR setting,  it does not claim to have proof that they actually succeeded in doing so.  Not that the lack of evidence of harm is deterring the press, though: the Daily Mail is suggesting that mortgage borrowers will seek to sue Barclays even in the absence of any such proof, and there is unlikely to be any shortage of lawyers ready to take the case on.

Anyway, is this all clear to you?  No?  Good! Let's get you down to make-up, and you can lead off the news bulletin at the top of the hour.