4. Reasons for Libor scandal and gathered experience
4.1. Main Causes of Libor Manipulation
As it was mentioned above, scandal resulted from lack of control and mistakes in record keeping. However, they are not main reasons of the problem. Manipulation stimulated by two major reasons. They are starting manipulation with the intension of get extra income and another one provided wrong benchmark. It is related to reputational viewpoint
4.1.1. Profit
It is generally accepted that the main objective of the businesses is getting higher profits as it is possible. Therefore, very large number of businesses, submitters and dealers who employed by various banks got profits when Libor scandal occurred. It was stated above that Libor impacts significantly …show more content…
It occurs with intention to maintain reputation. Necessity for this arose in the financial crisis times, because banks had to keep their reputation. Banks deceived the rates to maintain their liquidity at last periods. Banks are safe and trustworthy when they can easily take loans and paid yields are very low. For instance, proportion of Libor reference interest rate is three. If healthy or creditworthy bank wants to get inter-bank debt with the smallest percentage. When creditor provides 4% loan with adding only 1 percent yield, it means the bank has good reputation. Loans with low interest rates provide huge opportunities to banks. They can be more beneficial in financial …show more content…
This issue create a lot of pressure for financial sectors. First action that should be taken is deeply understand the problem itself. More or less, one of the way to prevent the future manipulation is properly regulate the financial sectors and protecting general public and participants’ rights in the financial market. Moreover, setting new rules and regulations from the high authorities in order to avoid careless consequences and boost the market activities where bonds and money transaction take place. Financial crises in 2007-2009 covers its reasons of short term lending fault and swap market demonstrates that it is currently exists. Thus, there is a chance to rebuild an effective and stable economy. Therefore, establishing a new benchmark or reforming the LIBOR interest rate may be open the doors of new perspectives and can respond to the instability in the financial market over the world. Reforming LIBOR benchmark can be the one the best technique rather than establishing new one, simple because the LIBOR has already conquer trusts of financial sector’s members throughout the world. However, when LIBOR scandal occurred there was a decline of a confidence in financial environment. Furthermore, over the 16 bank which manipulate with LIBOR benchmarks experience the substantial loss of reputation and government penalties for creating instability condition in a market. The
4.1. Main Causes of Libor Manipulation
As it was mentioned above, scandal resulted from lack of control and mistakes in record keeping. However, they are not main reasons of the problem. Manipulation stimulated by two major reasons. They are starting manipulation with the intension of get extra income and another one provided wrong benchmark. It is related to reputational viewpoint
4.1.1. Profit
It is generally accepted that the main objective of the businesses is getting higher profits as it is possible. Therefore, very large number of businesses, submitters and dealers who employed by various banks got profits when Libor scandal occurred. It was stated above that Libor impacts significantly …show more content…
It occurs with intention to maintain reputation. Necessity for this arose in the financial crisis times, because banks had to keep their reputation. Banks deceived the rates to maintain their liquidity at last periods. Banks are safe and trustworthy when they can easily take loans and paid yields are very low. For instance, proportion of Libor reference interest rate is three. If healthy or creditworthy bank wants to get inter-bank debt with the smallest percentage. When creditor provides 4% loan with adding only 1 percent yield, it means the bank has good reputation. Loans with low interest rates provide huge opportunities to banks. They can be more beneficial in financial …show more content…
This issue create a lot of pressure for financial sectors. First action that should be taken is deeply understand the problem itself. More or less, one of the way to prevent the future manipulation is properly regulate the financial sectors and protecting general public and participants’ rights in the financial market. Moreover, setting new rules and regulations from the high authorities in order to avoid careless consequences and boost the market activities where bonds and money transaction take place. Financial crises in 2007-2009 covers its reasons of short term lending fault and swap market demonstrates that it is currently exists. Thus, there is a chance to rebuild an effective and stable economy. Therefore, establishing a new benchmark or reforming the LIBOR interest rate may be open the doors of new perspectives and can respond to the instability in the financial market over the world. Reforming LIBOR benchmark can be the one the best technique rather than establishing new one, simple because the LIBOR has already conquer trusts of financial sector’s members throughout the world. However, when LIBOR scandal occurred there was a decline of a confidence in financial environment. Furthermore, over the 16 bank which manipulate with LIBOR benchmarks experience the substantial loss of reputation and government penalties for creating instability condition in a market. The