The 2012 LIBOR Scandal: How banks manipulated the world's most important interest rate
The discovery that dozens of banks had manipulated LIBOR—the benchmark for $350 trillion in financial contracts
In 2012, it emerged that Barclays, UBS, Deutsche Bank, and other major banks had manipulated LIBOR for years—the rate used as a reference for hundreds of trillions of dollars in financial instruments.
What is LIBOR
The London Interbank Offered Rate was the benchmark for approximately $350 trillion in contracts—mortgages, corporate loans, and derivatives.
The manipulation
Traders communicated internally with colleagues responsible for submitting LIBOR rates, asking them to raise or lower them based on their own positions. Barclays was the first to pay a $290 million fine. In total, over $9 billion in penalties were levied against more than 20 institutions. LIBOR was replaced by SOFR in 2023.
Lessons
- Benchmarks based on self-reporting are vulnerable to manipulation.
- The scale of fraud is inversely proportional to supervision.
- Derivatives based on manipulated benchmarks transfer wealth fraudulently.