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As always, these things are more complicated than they appear. Once you get past some of the media hysteria you see there are 2 types of conduct involved. First there are individual traders who influenced Barclays LIBOR submissions in order to benefit positions they had in their own books. Hard to defend. From an institutional perspective its very hard to stop every bad apple though - ie., you may have rules that are well policed, but if someone is determined enough to break them then what can you do? More complex, is where some as yet unknown level of management has applied pressure to lower the LIBOR submissions. The Barclays story is that their submissions looked high relative to other banks which prompted concerns in the market over Barclays liquidity - ie., if they are paying more to borrow than other banks, then its probably because they are having to access the market for large amounts. Barclays concluded others were falsely putting in low submission to flatter their own liquidity position and so joined the club.
Its worth remembering that this was in 2007/2008 when there was massive market dislocation and no banks were lending to each other anyway. So what difference did this make? And if the net effect was to lower a floating interest rate benchmark, is the level of excitement warranted?
Yes, systematic dishonesty should be punished.
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