By Paul Hodgson – CCO and Senior Research Associate
We are facing yet more revelations that banks are out to make money. Barclays Bank, and what sounds like every single other major global bank, has been manipulating LIBOR (the London Interbank Offered Rate) either to give the impression that the bank was stronger than it was, or to help close deals.
The wonder is not that the banks have been indulging in this kind of behavior but that there was a situation where it was possible to do so in the first place. Banks were set up to make profits. Expecting them to self-regulate when self-regulating would mean that their profits were lower is simply not realistic.
Clearly, if banks were ever able to regulate themselves without the intervention of external regulators they are no longer capable of doing so. Manipulating a supposedly standardized rate in order to make more profits is part of their DNA, so the ability to do this should be removed.
It’s no good blaming the Financial Services Authority in the U.K. because regulating setting LIBOR was not part of the Authority’s remit. Perhaps it should have been, perhaps it will be in the future, but it wasn’t in the past.
Allowing banks to set LIBOR without regulatory oversight is like allowing a hydraulic fracturing company to monitor the cleanliness of the groundwater in the vicinity of its wells without the EPA checking in.