Study Notes

What was the LIBOR-fixing scandal?

Level:
A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 4 Feb 2023

The LIBOR (London Interbank Offered Rate) fixing scandal was a financial scandal that was uncovered in 2012.

The LIBOR is a benchmark interest rate that is used to set the cost of borrowing for a wide range of financial products, including mortgages, credit cards, and student loans. It is calculated based on the average interest rates that a group of international banks claim they would pay to borrow from each other.

The scandal was centered around the manipulation of the LIBOR by some of the banks that participated in the rate-setting process.

Evidence emerged that some of the banks were artificially lowering or raising the LIBOR to benefit their own financial positions, such as by making their own borrowing costs appear lower than they actually were. This manipulation artificially affected the cost of borrowing for millions of people and businesses around the world.

The LIBOR-fixing scandal resulted in widespread public outrage and several major fines for the banks involved. In the aftermath of the scandal, many financial regulators took steps to improve the integrity of benchmark interest rates and increase transparency in the financial system.

The LIBOR has since been phased out and replaced by alternative benchmark interest rates.

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