Chapter 666 LIBOR Scandal

"The helicopter that Mr. Richard Hall was riding in crashed after taking off from his holiday villa in Bournemouth. According to the information we obtained from the British Air Crash Investigation Agency, the crash occurred shortly after takeoff..."

After hearing the report from his subordinates, Benjamin Rothschild looked grim and asked:

"Is it an accident or man-made?"

"There is no conclusion yet, but on the day of the incident, the weather in Bournemouth was sunny and the wind was relatively light. Another slightly unusual thing is that according to the investigation, the helicopter that Mr. Hall was riding in was likely to take off at an angle of about 45 degrees to the ground, which is not common in helicopter takeoffs. This takeoff method is more dangerous..."

"Is the helicopter pilot a suspect?"

"It cannot be determined for the time being. This is a direction of investigation. However, because the other party also died in this air crash and was employed by Mr. Hall for a long time before, I am afraid that the investigation into this may not necessarily have any results... Especially if someone really caused this accident behind the scenes."

In this regard, Benjamin Rothschild also knew that there was little hope. After all, he was not unaware of this...

If such an "accident" could be artificially created, then all possibilities of investigation would always be carefully cut off, such as...

"The London police are still investigating the car accident that day, Mr. Rothschild."

"I know that the Weber family has put a lot of pressure on the police. How is the woman now?"

"She has returned to her residence and is being taken care of by a special medical team. The security measures are also more stringent..."

Benjamin Rothschild put out the cigar in his hand in the crystal ashtray and said in a flat tone:

"Let's leave it at that for now, as a little warning to her."

...

"LIBOR?"

Sitting next to Barron was Darling, the British Chancellor of the Exchequer. He frowned and said:

"But the most important thing for us now is to help the financial industry get out of the impact of the crisis..."

Indeed, as the British Chancellor of the Exchequer, Darling has been troubled by the economic recession caused by the subprime mortgage crisis from last year to now.

Even in January and February this year, the government specifically criticized the media for fueling the banking crisis. At the end of January, the British Treasury Special Committee announced that it would investigate the role of the media in the banking crisis to determine whether to limit the scope of journalists' coverage during market turmoil.

This investigation and evidence collection began in early February, and some important figures in the news media were questioned one after another, including Robert Peston, the financial news editor of the British Broadcasting Corporation (BBC).

Peston has repeatedly revealed news of secret talks between financial institutions in his reports. Last fall, he revealed that Lloyds Bank of England and Halifax Bank had held merger negotiations, causing the latter's stock price to plummet.

Earlier, in 2007, he revealed that Northern Rock Bank sought financial support from the Bank of England, which subsequently triggered a run on depositors, and eventually led to Northern Rock Bank being acquired by Standard Chartered Bank after accepting government aid.

In addition to Peston, those who were questioned at the time also included relevant reporters from The Guardian, The Financial Times and The Daily Mail.

After all, the general election will be held next year. Given the current economic situation in Britain, if there is no significant improvement before then, I am afraid that the current Labour government will definitely step down - and Darling will definitely leave the position of Chancellor of the Exchequer by then.

"I know there are some problems with LIBOR, but this also needs to be considered from the overall perspective. After all, I don't want the banking industry, which has just improved, to be hit again."

What Darling said is exactly what he is worried about.

LIBOR refers to the London InterBank Offered Rate (LIBOR for short), which is the interest rate required by large international banks when they are willing to lend to other large international banks.

Currently, LIBOR is set by the British Bankers Association. It is the interest rate involved when commercial banks in the London Bank Internal Trading Market trade US dollars deposited in non-US banks.

In fact, the global banking system, including the United States, uses LIBOR and uses it as a benchmark for commercial loans, mortgages, and debt issuance rates.

At the same time, the interest rate of floating-rate long-term loans will also be determined on the basis of LIBOR, and LIBOR is also the reference rate for many contracts.

Therefore, LIBOR is very important in the global financial industry. It is the interest rate benchmark for more than 350 trillion US dollars of contracts worldwide, and it also affects more than 100 trillion US dollars of financial transactions each year.

The reason why Barron raised the issue of LIBOR to Chancellor Darling this time is to better maintain Britain's control over LIBOR.

In his previous life, the LIBOR scandal broke out in 2012. More than 12 major international banks were investigated in this scandal, including HSBC, Royal Bank of Scotland, Barclays, Deutsche Bank, Societe Generale, and Citigroup and JPMorgan Chase, the leaders of the banking industry.

These banks were accused of colluding to manipulate LIBOR and profit from it.

Before this, most ordinary banking scandals involved illegal transactions of specific banks, which were mostly initiated by bank insiders, damaging the interests of the bank itself, its shareholders and customers, and the scope of influence was limited to specific banks and their stakeholders. For example, in September 2011, Swiss Bank Group traders violated regulations, causing huge losses of US$2.3 billion and seriously affecting UBS's reputation.

But the difference of the LIBOR scandal was that it was not just illegal behavior of specific financial institutions, but overall market manipulation, involving a wide range of people. The object of manipulation was a benchmark interest rate that was a benchmark for the market and affected the entire system. Moreover, the big banks were both the instigators and direct beneficiaries of the manipulation, and ordinary market participants and even the public became the largest potential victim group.

This will inevitably deepen the rift between the financial sector and society, and make investors and the public more distrustful of big banks.

In fact, LIBOR is not determined based on actual financial transaction statistics, but by calculating the weighted average of the interest rates between major banks in the London interbank lending market to obtain the final number.

LIBOR is formed from the quotes of 6-18 banks designated by the Bank of England Association (BBA). At about 11 o'clock every working day, each bank submits an interbank lending rate that they think they need to Reuters. After removing the highest and lowest four quotes, the average is calculated to be the US dollar LIBOR rate of the day.

Yes, since its birth in the 1970s, LIBOR has been published by Reuters Group, which was already under SEM Group at that time - but Standard Chartered Bank, a subsidiary of Standard Chartered Merrill Lynch, was not a LIBOR quote bank because its main business was in emerging markets before.

Under ideal conditions, through the LIBOR release mechanism, an ideal interest rate can be calculated to more accurately reflect market price information.

Even if some banks want to profit from over-reporting or under-reporting interest rates, the mechanism of eliminating high and low values ​​and calculating the average will prevent them from succeeding.

In theory, different quote banks as competitors can achieve checks and balances to prevent individual banks from gaining improper advantages and form a self-supervisory honor system.

Therefore, in response to previous critics' doubts about this interest rate formation mechanism, the Bank of England Association defended it on the grounds that it reflects the self-discipline and advantages of the free market.

But it is obvious that the interest rate determined by this formation mechanism can only guarantee fairness when each bank is an isolated individual and makes quotation decisions only for its own interests.

Once different quoters reach a conspiracy and take coordinated actions, they can increase the interests of everyone and transfer losses to the outside.

According to the results of subsequent investigations by relevant British and American institutions, some member banks of the Bank of England Association took similar coordinated actions to gain benefits.

Basically, quoters often cooperate to adopt two manipulation methods. One is to adjust and control the LIBOR interest rate to benefit the investment position of the bank; the other is to give market participants the illusion that the bank's capital situation is better than the actual situation by under-reporting interest rate quotes.