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Libor Scandal

Posted: Jul 16, 2012 9:36:42 AM

Barclays is currently under investigation for allegedly manipulating Libor rates.  The investigation has already led to the resignation of the chairman and CEO of Barclays.  The manipulation of Libor rates has affected all mortgage rates that use Libor as a basis, as well as all loans made by banks.  While we don’t know the exact amount of additional  revenue earned by banks from its customers, we do know that it is likely that customers were overcharged in the multi- billion dollar range. Many other banks are involved in this scandal, and the probes are just beginning.  Our take on this story is that it will be settled by fines and lawsuits and will in the short term affect many banks earnings.  Additionally, there will be some criminal probes landing some executives in prison, as well as the loss of confidence that the public has with the fairness of the banking institutions as a whole. Like so many scandals in the past, the scandal will eventually go away without creating corrective change in the banking system.

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