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Given the level of compliance & audit work required in the UK FS industry (look for example at the sizes of regulatory and operational risk teams) and the natur

Given the level of compliance & audit work required in the UK FS industry (look for example at the sizes of regulatory and operational risk teams) and the nature of career paths in the industry (senior figures tend to come up from the ranks quite often), I'd have to say I'd be really surprised if no-one in the senior management of affected banks was aware that Libor manipulation occurred. That's not to say that there'll ever be enough evidence to prosecute that awareness, but the idea that they have no idea what goes on at lower levels, and that none of the 2nd/3rd line risk functions or Internal Audit did any work that would have uncovered that activity....

cm2187 10y ago
No the development of the swap market is quite recent. At the time when senior managemers were traders or sales people, there was no particular incentive for anyone to push libor submissions one way or another (and libor submission was more of a boring routine, the markets only started focusing on them from 2007).
- raesene6 10y ago
  So your suggestion is that no-one in any of the risk functions or internal audit functions (or the external auditors of the bank) ever thought to look at Libor in the years from it becoming important until the scandal emerged? And that senior management, who were surely aware that it was now important, never thought about the risk of a rating based on trust being manipulated by people who would profit from that manipulation by receiving increased bonuses? If all that's true, doesn't say a lot for all these very highly paid bank executives does it?
  - cm2187 10y ago
    I do not believe Libor was audited or under the supervision of any of the risk and internal audit functions before 2007. And you are right, the controls were insufficient, and have been considerably strengthened since. But this wasn't deemed to be a sensitive activity. And outside of a few swap traders who were sitting on massive libor future positions, the little rounding up or down that the money market desks were doing before the crisis wouldn't really matter to anyone else.
    - raesene6 10y ago
      From https://en.wikipedia.org/wiki/Libor_scandal https://en.wikipedia.org/wiki/Libor_scandal , looks like it was pretty relevant from 2000 onwards at least. The excerpt below seems to strongly indicate manipulation designed to improve banks profits over a long period of time "Statistical analysis indicated that the Libor rose consistently on the first day of each month between 2000 and 2009 on the day that most adjustable-rate mortgages had as a change date on which new repayment rates would "reset". An email referenced in the lawsuit from the Barclay's settlement, showed a trader asking for a higher Libor rate because "We're getting killed on our three-month resets." During the analysed period, the Libor rate rose on average more than two basis points above the average on the first day of the month, and between 2007 and 2009, the Libor rate rose on average more than seven and one-half basis points above the average on the first day of the month." Also from https://www.bloomberg.com/news/articles/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark https://www.bloomberg.com/news/articles/2013-01-28/libor-lie... "At Barclays, derivatives traders made 257 requests for U.S.-dollar Libor, yen Libor and euro interbank offered rate, or Euribor, submissions from January 2005 to June 2009, " So whilst it may be true that it became more relevant after 2007, it seems be that there were some elements of this that were longer standing.

cm2187 10y ago

No the development of the swap market is quite recent. At the time when senior managemers were traders or sales people, there was no particular incentive for anyone to push libor submissions one way or another (and libor submission was more of a boring routine, the markets only started focusing on them from 2007).

raesene6 10y ago
So your suggestion is that no-one in any of the risk functions or internal audit functions (or the external auditors of the bank) ever thought to look at Libor in the years from it becoming important until the scandal emerged? And that senior management, who were surely aware that it was now important, never thought about the risk of a rating based on trust being manipulated by people who would profit from that manipulation by receiving increased bonuses? If all that's true, doesn't say a lot for all these very highly paid bank executives does it?
- cm2187 10y ago
  I do not believe Libor was audited or under the supervision of any of the risk and internal audit functions before 2007. And you are right, the controls were insufficient, and have been considerably strengthened since. But this wasn't deemed to be a sensitive activity. And outside of a few swap traders who were sitting on massive libor future positions, the little rounding up or down that the money market desks were doing before the crisis wouldn't really matter to anyone else.
  - raesene6 10y ago
    From https://en.wikipedia.org/wiki/Libor_scandal https://en.wikipedia.org/wiki/Libor_scandal , looks like it was pretty relevant from 2000 onwards at least. The excerpt below seems to strongly indicate manipulation designed to improve banks profits over a long period of time "Statistical analysis indicated that the Libor rose consistently on the first day of each month between 2000 and 2009 on the day that most adjustable-rate mortgages had as a change date on which new repayment rates would "reset". An email referenced in the lawsuit from the Barclay's settlement, showed a trader asking for a higher Libor rate because "We're getting killed on our three-month resets." During the analysed period, the Libor rate rose on average more than two basis points above the average on the first day of the month, and between 2007 and 2009, the Libor rate rose on average more than seven and one-half basis points above the average on the first day of the month." Also from https://www.bloomberg.com/news/articles/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark https://www.bloomberg.com/news/articles/2013-01-28/libor-lie... "At Barclays, derivatives traders made 257 requests for U.S.-dollar Libor, yen Libor and euro interbank offered rate, or Euribor, submissions from January 2005 to June 2009, " So whilst it may be true that it became more relevant after 2007, it seems be that there were some elements of this that were longer standing.