Libor, from Edward Talisse

April 19, 2008 |

It is interesting to observe all the hot headed banter of late about the transparency and accuracy of the daily Libor fixings. SMR, Wilmott, Bloomberg, Reuters and even the esteemed WSJ have picked up on the story. The fixings are published by the British Bankers Association (BBA) each day at 11:00 am London time. The current rub is that the fixing panel is artificially setting Libor too low in order to mask rapidly rising inter-bank borrowing rates. The Libor fixings are extremely important and represent the floating cost of a three or six month swap versus a fixed rate. It's a huge market in the USA, Europe and Asia. Manipulating Libor is as old as Stonehenge. Why would anyone be surprised that banks set Libor at rates favourable to themselves? The spread between Libor and official central bank policy rates are near all-time highs globally. That means that central banks have yet to nail and close the current credit fiasco.





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