Saturday, February 04, 2012

LIBOR under a cloud?

London Inter-Bank Offer Rate is one of the few universally accepted benchmarks in the financial market. Most financial derivatives, nicknamed 'financial weapons of mass destruction' by Warren Buffett recognise the sanctity of LIBOR under the assumption that no party can manipulate this rate. The premise that LIBOR is an unassailable neutral benchmark is now under a threat.

A Bloomberg report datelined Zurich puts us on notice that Comco, the Swiss watchdog is presently probing allegations of collusive manipulation among derivative traders including UBS, Credit Suisse, Bank of Tokyo-Mitsubishi, Citigroup, Deutsche Bank, SocGen and many other worthies.

If the allegations are proved, it may be the end of financial market as we know of. Compulsory dissolution of any institution that is proven to have indulged in this ultimate malpractice is the only reasonable deterrent to such an obnoxious behaviour. Are we prepared to face this reality?

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