Research (Proinvestory.cz)
Markets  |  July 23, 2012 11:58:18

LIBOR scandal is only a detonator


Recently, a key talking about handling the London international interest rates (LIBOR) . The manipulation in essence hit virtually everyone who let this or any other form came into contact with the financial market.With regard to the principle of setting rates (simply put - is now discarded from the extremes of reported rates and the rest of the averages), we will be wiser in September, when the Basel have on the future LIBOR one ton central bank governors.

Given that the LIBOR rate fixing is also involved in U.S. banks, the investigation will end up handling rates or the United States - the first in the wound will be Citigroup and JP Morgan. This investigation, however, will not only central banks, but preferably on them independent institutions, ideally courts.The central bank is not in a given situation an independent body, but they have their own interests.

What might be interested in central banks?

There is a range of distorted rates, which are still virtually silent. Deliberately look at a chart comparing LIBOR to Fed rates. Correlation with the exception of autumn 2008, almost perfect.

Link to chart http://proinvestory.cz/wp-content/gallery/cache/330__500x_fed-libor.jpg

Increased risk is the last thing the central banks desire. Without these manipulations, this correlation would be gone.Any increase in volatility in global interest rates would only contribute to the growth of risk in the markets panic in case of force would be possible to runes appeared on the bank.

It is so obvious that it manipulated LIBOR meet central banks around the world, from the Fed after the Bank of England. Could it be because the central bank did not respond to signals indicating the possible manipulation? I know that this reasoning is no longer extreme, but still - that the system is up as it was toif necessary to bring the rate to the required limits??

What is currently known from the investigation?

Maybe that Citigroup is accused of manipulating the rates in Japan and in January there was excluded from setting rates. German regulator BaFin began investigating the Deutsche Bank. Already under investigation of Swiss banks (specifically, Credit Suisse and UBS) German, respectively. French authorities. Similar investigations are underway for a long time in the United States, the first action can be expected this year.

Once collected the necessary data, we can expect a wave of lawsuits from clients and non-participating banks will feel harmed by manipulated rates. In this case there is the largest ever wave of claims on banks from clients. Such that banks can have big problems stand it. The fine of 450 million U.S. dollars paid by Barclays Bank, will be only minor and banks will try to settle the case.

What action can lead?

font-size-adjust: none; font-stretch: normal;-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> These actions may be directed not only at banks as financial institutions, but to managers and individual traders in banks,   who evidently suspects something . In the event that investigators in the ongoing investigation hit the other dubious things, they can expand the scope of the current investigation or start a completely new investigation. As a likely outcome seems to me many years of comprehensive due diligence around the global banking sector.

This new regulation will control. It is quite possible that the banks a few years will be seen as "utilities" that is similar optics as power plants, waterworks, etc., including the regulation applied.

These new regulations may become the second leg, which will be transformed beyond recognition the world financial system .

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