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Liborgate: towards one scandal too many for the banks?

Have you ever heard of “liborgate” ? Not yet ? It would be time to get up to date because it is financial scandal who will occupy the banks throughout the summer and even after... I advise you to take advantage of your vacation, if you are lucky enough to have one, because in my humble opinion, there are some who will have a painful awakening!

Libor of the cliff!

First of all, I would like to apologize for this play on words which is really very bad, even for me... Then, for those who are not fans of financial markets, I simply remind you that the Libor is a British index indicating in real time the rate at which the banks affiliated with it (almost all…) lend to each other. Please believe me when I tell you that this is one of the main benchmark indices in Europe and around the world. Suddenly, doubting its credibility seemed almost as incongruous as asserting that the Earth is flat…I use the imperfect tense because it seems that this is no longer entirely true.

Indeed, some banks would have skillfully manipulated their prices to suggest that everything was going very well and that the banking sector was not giving in to panic. You'll probably think it's not a big deal. However, even putting aside the totally illegal aspect of these operations, the “liborgate” could have damaged the flagships of the European financial industry, at the forefront of which was the very venerable and respectable British bank Barclays, by whom the scandal happened. Even more serious, the smart guys who had managed, without much difficulty, to manipulate the British interbank rate had the idea of doing the same with Euribor, its European counterpart.


Among the banks cited by the specialized media, notably the very serious Financial Times, include of course the British Barclays And HSBC, but also UBS, there Deutsche Bank and two French banks which are the Agricultural credit and the Societe Generale which is definitely in all the “good moves”… That being said, don’t make me say what I didn’t say, all the banks I just mentioned are not officially involved and the French scream, to anyone who will believe them, that they absolutely did not take part in financial operations aimed at manipulating prices. That being said, I will not be particularly surprised if the list were to grow as maintaining interbank rates at fanciful levels has been profitable for all banks without exception!


One scandal too many?

Far be it from me to act cynical, or to suggest that I am completely disillusioned, but I have the vague impression that financiers never learn anything! How can we imagine that such manipulation would occur after the subprime crisis and other toxic products of all kinds, or even the Kerviel affair and the more recent one of Thames Whale » ? Weren't the banks better regulated? Hadn't we said that capitalism would be “moralized”? Obviously, no…

Even if this story will undoubtedly be less harmful than that of “subprimes”, it risks having repercussions on the financial sector as a whole. And then, we must admit that this new affair brings together some of the subjects which exasperate the most when we talk about finance, whether arrogance, greed or manifest incompetence of regulatory systems. Indeed, how can we not underline the conceit of the now ex-director of Barclays, Bob Diamond, who probably thought that the “diamonds are forever” and that there was nothing wrong with requiring its employees to handle the Libor since in any case no one would be able to understand... Bad luck, his little schemes ended up being seen and neither the resignation of the president of the bank, Marcus Agius, nor the abandonment of his comfortable bonus were enough to calm public opinion.

Greed is also very present because, as Christophe Nijdam, analyst at Alphavalue, on the La Tribune website, “Underestimating Libor by two small basis points allowed some banks to make a lot of money on rate swaps”. However, what in my opinion is the most serious in this matter, it's the slowness of the regulation systems. Why did it take so long for this scandal to emerge, even though the authorities had known about it for a long time? So, if we believe the New York Times, an employee of the Barclays allegedly warned the Federal Reserve Bank of New York of embezzlement in April 2008. But nothing was done…

In conclusion, we can only hope that this scandal which will splash all of the banks does not do too much damage and above all that, for once, regulators take stock of events and put in place measures to change things. Of course, this last hope is more wishful thinking than anything else…


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