Libor has always been the benchmark of interest rate for bankers whose aim is to generate their “trust” among their peers in the banking world. Since it has existed decades ago, it was considered as the prime basis in fixing the small interest rates for the loans of banks in the global market. These banks, specifically, are evaluated through certain guidelines set by the British Bankers’ Association to ensure the stability of the organization, so as when the banks themselves borrow from each other, there will be sufficient funds to regulate in the operation.
Nonetheless, with the current catastrophe hitting the London Interbank Offered Rate (LIBOR), the trust of different states which are involved in the business of fixing the rate is being swayed by skepticism and criticism of politicians and businessmen. It is not an unusual reaction for a huge scandal of rate manipulation of the Barclays Capital as reported more than three weeks ago.
The controversy had commenced when the CEO, Bob Diamond, of the said Banking giant in the United Kingdom resigned after his colleagues revealed the anomalies of manipulation. It appears for U.K. Prime Minister David Cameron and other politicians to be a sufficient basis to condemn such a serious matter. And what is more worst about it is that authorities are now investigating other banks involved in the said rate fixation.
As a consequence, the European Commission had proposed to make the interest rate fixing as a criminal offense. Viviane Reding, Justice Commissioner, as reported, said that the proposal would boltster the advocay in putting end to the criminal activities in the banking industry. She further expressed the threat in the economy by elucidating that the “Public confidence has taken a nosedive with the latest scandals about serious manipulations of lending rates by banks” (quote from http://www.bbc.co.uk/news/business).
Meanwhile, in the wake of the said controversy, it was revealed that the major flaw was committed due to the weak governance in the said fixation rate process. It is, apparently, determined because of some reports that there was a conspiracy between the said bank and other staffs involved in the process to manipulate the rate in favor of the former. Thus, consequently, the investigation is in progress to resolve the issue and to save the breakdown of trust, if not totally the economy.
At any rate, what is more certain as for the time being is that there can hardly be a benefit of doubt to be extended by the authorities to the proximate cause of the scandal. They can be presumed as innocent, but the accusations that have led the different sectors to file a civil suit against those who were involved may already be adequate to prosecute them in the “court of human conscience”.
It is ultimately a sin which can never be washed out by mere alibis and lies for it has already been engraved in the annoying history of Libor; there is neither a way to escape nor a place to hide. The only safe strategy for the organization then is to face the issue and recover by giving a counter blow against all the negative criticisms; it can be done through a total transformation in the system of rate processing and implementing stricter banking rules to restore the trust of the bankers and the public in general.
But for now, the skeptics in the “banking republic” still considered the issue as one that will always be remembered in the future, but can never be forgotten in the past. And seriously, the wise men are asking: “Can Libor be trusted again?”