LIBOR

An acronym much in the news today, including some hysterical submissions from the ignorant end of the press and from the leader of the Labour Party.

It is about an answer to the question 'what is the interest rate?'. Many years ago when I started work in the City, the latest thing was syndicated loans, where as many as a hundred banks would group together to make a a huge loan sufficient for a major infrastructure project. Naturally one loan required one interest rate, so two or three would be nominated to give their cost of funds at a certain time of the morning, usually 11am after the initial frenzy had calmed down, and an average would be taken. That was the London Interbank Offered Rate, LIBOR.

These days LIBOR applies to literally hundreds of trillions of dollars worth of debt instruments and so has become institutionalised, under the aegis of the British Bankers Association and Reuters.

It now seems some banks have been guilty of feeding in a rate to suit their own book.

Now, I have a mortgage linked to LIBOR, most of our mortgages are, directly or indirectly. So I might have been worried when Ed Milliband said that the British Public had a grievance. But a close inspection appears to show that the rogue banks quoted low, so as to keep their own funding costs down. So I shan't be suing, thanks Ed, claiming I've been paying too little. The people who lent me the money might have a beef. But they're another bank.

This is, however serious: now this function will have to be overseen (by the Bank of England, for preference).

This has been crooked and dishonest, but no more than that. I think the heads of any banks indicted for this will have to consider their positions. But it's not the end of the world. Move along.