It is no secret that major banks have altered their policies in order to weather the current financial crises, but when they change their lending figures to an unfavorable rate in order to profit, it becomes a concern for the finance world. The UK’s London Interbank Offered Rate (known as Libor) undergoes a different calculation each day as British banks all add their figures on rates to the news and finance provider Thomson Reuters. These bank lending rates are used by Thomson Reuters to ensure a uniform rate for the entire United Kingdom, not favoring a single bank but rather using the collected mean of this data; the resulting Libor figure, as such, should not be a result of an individual outfit’s influence.
Yet recent investigations into Libor have turned up questions about operations and fair play. In February, regulating bodies from Canadian banks questioned whether the large banks in the UK, namely HSBC, the Royal Bank, and Barclays, have been suggested to have worked in tandem with Thomson Reuters to modify Libor to their advantage. Other voices have joined the Canadian regulation outcries and British Treasury authorities have begun investigations about whether these bank lending rates have been artificially changed — and who would benefit from such manipulations.
Only last week, officials of the British Bankers Association and Financial Services Authority convened to discuss what they called the future regulatory and market developments, indicating that more oversight on Libor’s number crunching could be ahead. While the British Banker’s Association includes some of the banks that contribute to Thomson Reuters and thus may have had a hand in modifying the Libor rates, they claim this is a fair and standard process of investigation.
That foreign banks have suggested foul play could affect the exchange rate of the British pound. The Libor rating affects the price settings for both economic products and financial states of health, meaning that the British banks may have modified their numbers to suggest that they had been in better shape than their books would suggest and spur greater foreign investment. Future regulations could further affect bank lending rates in the UK.