Which 18 banks set libor

Vince McGonagle, a small and wiry man with a hangdog expression, had been at the enforcement division of the Commodity Futures Trading Commission CFTC in Washington for 11 years, during which time his red hair had turned grey around the edges. While his classmates took highly paid positions defending companies and individuals accused of corporate corruption, McGonagle opted to build a career bringing cases against them. He joined the agency as a trial attorney and was now, at 44, a manager overseeing teams of lawyers and investigators.

McGonagle closed the door to his office and settled down to read the daily news. In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London interbank offered rate, known as Libor, is becoming unreliable.

That was having the effect of distorting Libor, and therefore trillions of dollars of securities around the world. They feared if they were honest they could go the same way as Bear Stearns , the year-old New York securities firm that had collapsed the previous month. The big flaw in Libor was that it relied on banks to tell the truth but encouraged them to lie. They were prevented from deviating too far from the truth because their fellow market participants knew what rates they were really being charged.

Over the previous few months, that had changed. Banks had stopped lending to each other for periods of longer than a few days, preferring to stockpile their cash. After Bear Stearns there was no guarantee they would get it back. With so much at stake, lenders had become fixated on what their rivals were inputting.

Any outlier at the higher — that is, riskier — end was in danger of becoming a pariah, unable to access the liquidity it needed to fund its balance sheet. Soon banks began to submit rates they thought would place them in the middle of the pack rather than what they truly believed they could borrow unsecured cash for. The motivation for low-balling was not tied to profit — many banks actually stood to lose out from lower Libors. This was about survival.

As the financial crisis deepened, central bankers monitored Libor in different currencies to see how successful their latest policy announcements were in calming markets. If banks were lying about Libor, it was not just affecting interest rates and derivatives payments.

It was skewing reality. There was no inkling at this stage that traders such as Hayes were pushing Libor around to boost their profits, but here was a benchmark that relied on the honesty of traders who had a direct interest in where it was set.

In both cases, the body responsible for overseeing the rate had no punitive powers, so there was little to discourage firms from cheating. When McGonagle finished reading the Wall Street Journal article, he emailed colleagues and asked them what they knew about Libor.

His team put together a dossier, including some preliminary reports from within the financial community. While there was no evidence of manipulation by specific firms, McGonagle was coming around to the idea of launching an investigation. Cecere set in motion plans for Citigroup to join the Tibor Tokyo interbank offered rate panel which, Hayes would crow, was even easier to influence than Libor because fewer banks contributed to it.

Hayes wanted to hit the ground running when he started trading, and being able to influence the two benchmarks that helped determine the profitability of the bulk of his positions was an important step. On the afternoon of 8 December, Cecere was at his desk on the Tokyo trading floor. He had an office but seldom used it, preferring to be amid the action.

He believed that six-month yen Libor was too high. After checking the submissions from the previous day, he was surprised to see that Citigroup had input one of the highest figures. Cecere contacted the head of the risk treasury team in Tokyo, Stantley Tan, and asked him to find out who the yen-setter was and request that he lower his input by several basis points.

Cecere checked the Libors again later that night and was annoyed to see that Citigroup had only reduced its six-month rate by a quarter of a basis point. The following day, Tan went back to the treasury desk in London as requested. The response he got back from his UK counterpart left little room for misinterpretation: it was a thinly veiled warning to back off. Hayes, who sat just behind his boss, was not on the email chain, but Cecere sent it to him.

Thursfield was a straitlaced man in his forties who had spent more than 20 years in risk management at Citigroup after joining as a graduate trainee. Hayes would have to try a different tack. On 14 December he sent an email to his London counterpart, asking him to approach the rate-setters directly. They can be invaluable to us.

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Simply state. Marginal standing facility MSF is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

Description: Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short. The MSF rate is pegged basis points or a percentage.

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Nifty 17, Market Watch. ET NOW. Brand Solutions. Video series featuring innovators. This key measure for the global financial industry has been burdened by scandals and crises, however, and Libor is currently being replaced by other more up-to-date pricing mechanisms.

Libor provides loan issuers with a benchmark for the interest rates they charge on different financial products. Libor is set each day by collecting estimates from up to 18 global banks on the interest rates they would charge for different loan maturities, given their outlook on local economic conditions. These are averaged together to provide a range of Libor rates. Libor was formalized in to provide financial institutions with benchmarks for setting interest rates, although its roots go back to the late s and early s.

The London Interbank Offered Rate has been used as the basis for adjustable-rate mortgages, asset-backed securities, municipal bonds , credit default swaps, private student loans and other types of debt. There are other benchmarks, including the U. What does Libor mean for you? If the Libor three-month rate is 0. Other factors, such as your credit score, income and the loan term, are also factored in.

The bank references Libor when adjusting the interest rate on your loan, changing how much you pay each month. Each day, 18 international banks submit their ideas of the rates they think they would pay if they had to borrow money from another bank on the interbank lending market in London. To help guard against extreme highs or lows that might skew LIBOR, the Intercontinental Exchange ICE Benchmark Administration strips out the four highest submissions and the four lowest submissions before calculating an average.

In the past, a panel of bankers oversaw Libor in each currency, but scandals exposing manipulation of Libor has led many national regulators to identify alternatives to Libor. Libor is on the way out as a loan benchmark because of the role it played in worsening the financial crisis as well as scandals involving Libor manipulation among the rate-setting banks. The use and abuse of credit default swaps CDS was one of the major drivers of the financial crisis. A very wide range of interrelated financial companies insured risky mortgages and other questionable financial products using CDS.

Rates for CDS were set using Libor, and these derivative investments were used to insure against defaults on subprime mortgages. The firm issued vast quantities of CDS on subprime mortgages and countless other financial products, like mortgaged-backed securities.

The crash of the real estate market in , followed by the even larger market meltdown in , forced AIG into bankruptcy, resulting in one of the largest government bailouts in history. Libor transmitted the crisis far and wide since every day Libor rate-setting banks estimated higher and higher interest rates.