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A multiyear, global investigation into the setting of interest rates has focused on often complextrades in the financial centers of New York, London and Tokyo. But the accusations in the case have real-life consequences for consumers and businesses in the United States.
Banks around the world use financial benchmarks to set the interest rates on many of the loans they make. The most prominent of those benchmarks is the London interbank offered rate, Libor.
In setting the overall interest on loans, banks often ask borrowers to pay Libor — the three-month rate on Wednesday was 0.46 percent — plus an added amount of interest. As Libor moves up, the borrower pays more, and vice versa. For instance, America’s top four mortgage lenders — Bank of America, JPMorgan Chase, Wells Fargoand U.S. Bancorp— all use Libor to establish interest payments on adjustable-rate mortgages.
Given its extensive reach, it would seem critical that Libor be calculated in an impartial and transparent manner. But the opposite seems to have been the case. In a settlement announced Wednesday, regulators in the United States and Britain said that the British bank Barclays had manipulated Libor to increase its traders’ profits over several years. Barclays agreed to pay over $450 million to resolve the accusations; other large banks are expected to enter similar settlements.
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