Misconceptions of Interest Benchmark Misconduct

Abstract

Attempts to influence interest rate benchmarks such as Libor and Euribor by procuring or providing false submissions to data collators are examples of misconduct or criminal behaviour that – contrary to general belief – may have taken place for some years before becoming widely–known during the period of stress in 2007–08 that began the global financial crisis. Subsequent enquiries, litigation, trials and regulatory settlements have included accounts of conduct that disturbed not only popular opinion but senior commercial and regulatory figures who might have been expected to require ethical behaviour of those directly concerned. Misconduct and its apparent toleration accordingly contributed to a general loss of trust in the financial sector. Penalties and settlements have been repeatedly imposed on offending banks, although judicial proceedings and regulatory enforcement actions arising from benchmark misconduct are yet to conclude. This article considers the neglect of interest benchmark misconduct before and since it became well known; why distinct forms of misconduct have been wrongly conflated in popular and official accounts and in judicial proceedings; whether a pervasive loss of trust caused by a perception of widespread misconduct has had lasting commercial or location–specific effects; and whether reforms intended to restore external confidence by substituting recorded transaction data for subjective estimates may revive functional concerns that interest benchmarks were created to remove.