Rebirth of England.

Chapter 666 LIBOR Scandal
"The helicopter that Mr. Richard Hall was riding in crashed after taking off from his holiday home in Bournemouth. According to the information we obtained from the British Air Accident Investigation Agency, the crash occurred shortly after takeoff..."

After hearing the report from his men, Benjamin Rothschild asked with a grim expression:
"Is it an accident or man-made?"

"No conclusion has been reached yet, but on the day of the incident, the weather in Bournemouth was sunny and the wind was relatively light. Another slightly unusual thing is that according to the investigation, the helicopter that Mr. Hall was riding in was likely to take off at an angle of about 45 degrees to the ground, which is not common in helicopter takeoffs. This takeoff method is more dangerous..."

"Is the helicopter pilot a suspect?"

"It's not certain yet. This is a direction for investigation. However, because the other party also died in this plane crash and was employed by Mr. Hall for a long time, I'm afraid the investigation may not necessarily produce any results...especially if someone really caused this accident behind the scenes."

Benjamin Rothschild also knew that there was little hope. After all, he was not unaware of this...

If one can artificially create such an "accident", then all possibilities of investigation will be carefully cut off, for example...

"The London police are still investigating the accident that day, Mr. Rothschild."

"I know that the Weber family has put a lot of pressure on the police. How is that woman doing now?"

"She has now returned to her residence and is being cared for by a dedicated medical team. The security measures have also been tightened..."

Benjamin Rothschild put out the cigar in his hand into the crystal ashtray and said in a calm tone:
"Let's just leave it at that for now. Take it as a small warning to her."

……

“What about LIBOR?”

Sitting next to Barron was Darling, the British Chancellor of the Exchequer. He frowned and said:
"But the most important thing for us now is to help the financial industry get out of the impact of the crisis..."

Indeed, as Britain's Chancellor of the Exchequer, Darling has been troubled by the economic recession caused by the subprime mortgage crisis from last year to now.

Even in January and February this year, the government specifically criticized the media for fueling the banking crisis. At the end of January, the UK Treasury Special Committee announced that it would investigate the role of the media in the banking crisis to determine whether to restrict the scope of journalists' reporting during periods of market turmoil.

This time, the investigation and evidence collection began in early February, and some important figures in the news media have been questioned one after another, including Robert Peston, the financial news editor of the British Broadcasting Corporation (BBC).

Peston has repeatedly revealed information about secret talks among financial institutions in his reports. Last fall, he broke the news that Lloyds Bank of England and Halifax Bank were holding merger talks, causing the latter's share price to plummet.

Earlier, in 2007, he revealed that Northern Rock Bank was seeking financial support from the Bank of England, which subsequently triggered a run on depositors and ultimately led to Northern Rock Bank being acquired by Standard Chartered Bank after receiving government aid.

In addition to Peston, those questioned at the time included reporters from The Guardian, the Financial Times and the Daily Mail.

After all, a general election will be held next year, and given the current economic situation in the UK, if there is no significant improvement before then, I am afraid the current Labour government will have to step down - and by then Darling will inevitably have to leave the position of Chancellor of the Exchequer.

"I know there are some problems with LIBOR, but this also needs to be considered from the overall perspective. After all, I don't want the banking industry, which has just improved, to be hit again."

What Darling said was exactly what he was worried about.

LIBOR refers to the London InterBank Offered Rate (LIBOR), which is the interest rate that large international banks are willing to ask when they lend to other large international banks. Currently, LIBOR is set by the British Bankers Association. It is the interest rate involved when commercial banks in the London interbank trading market trade US dollars deposited in non-US banks.

In fact, the global banking system, including the United States, uses LIBOR as a benchmark for commercial loans, mortgages, and debt issuance interest rates.

At the same time, the interest rate of floating rate long-term loans will also be determined based on LIBOR, which is also the reference rate for many contracts.

Therefore, LIBOR is very important in the global financial industry. It is the interest rate benchmark for more than US$350 trillion in contracts worldwide, and it also affects more than US$1000 trillion in financial transactions each year.

The reason why Barron raised the issue of LIBOR to Chancellor of the Exchequer Darling this time was to better maintain Britain's control over LIBOR.

In his previous life, the LIBOR scandal broke out in 2012. More than 12 major international banks were investigated in this scandal, including HSBC, Royal Bank of Scotland, Barclays, Deutsche Bank, Societe Generale, as well as Citigroup, JPMorgan Chase and other leading banks in the banking industry.

The banks were accused of colluding to profit from manipulating LIBOR.

Prior to this, most common banking scandals involved illegal transactions by specific banks, which were mostly initiated by bank insiders and damaged the interests of the bank itself, its shareholders and customers. The scope of impact was limited to specific banks and their stakeholders. For example, in September 2011, UBS Group traders violated regulations, which not only brought huge losses of US$9 billion, but also seriously affected UBS's reputation.

But the difference between that LIBOR scandal is that it was not just an illegal act by a specific financial institution, but an overall market manipulation with wide-ranging implications. The object of manipulation was a benchmark interest rate that was a market benchmark and had a far-reaching impact. Moreover, the big banks were both the instigators and direct beneficiaries of the manipulation, while ordinary market participants and even the public became the largest group of potential victims.

This will inevitably deepen the rift between the financial sector and society, and make investors and the public more distrustful of big banks.

In fact, LIBOR is not determined based on actual financial transaction statistics, but rather by calculating the weighted average of the interest rates between major banks in the London interbank offered market to arrive at the final number.

LIBOR is formed from the quotes of 6-18 banks designated by the Bank of England Association (BBA). At around 11 o'clock every working day, each bank submits to Reuters an interbank offered rate that they think they need. After removing the highest and lowest four quotes, the average is calculated to be the US dollar LIBOR rate for that day.

Yes, since its birth in the 1970s, LIBOR has been released by Reuters Group, which was then a subsidiary of SEM Group. However, Standard Chartered Bank, a subsidiary of Standard Chartered Merrill Lynch, was not a LIBOR quoter because its main business was previously in emerging markets.

Under ideal circumstances, through the LIBOR publication mechanism, an ideal interest rate can be calculated to more accurately reflect market price information.

Even if some banks want to profit by over- or under-reporting interest rates, the mechanism of eliminating high and low values ​​and calculating the average will prevent them from succeeding.

In theory, different quoting banks as competitors can achieve checks and balances, prevent individual banks from gaining improper advantages, and form a self-monitoring honor system.

Therefore, in response to previous critics' doubts about this interest rate formation mechanism, the Bank of England has defended it on the grounds that it reflects the self-discipline and advantages of the free market.

But it is obvious that the interest rate determined by this formation mechanism can only be guaranteed to be fair when each bank acts as an isolated individual and makes quotation decisions only for its own interests.

Once different bidders reach a collusion and take coordinated actions, they can increase the benefits of everyone and transfer the losses to the outside.

According to subsequent investigations by relevant British and American institutions, some member banks of the Bank of England Association took similar coordinated actions to gain benefits.

Basically, quoters often cooperate to adopt two manipulation methods. One is to adjust and control the LIBOR interest rate to benefit the bank's investment position; the other is to underreport the interest rate to give market participants the illusion that the bank's capital situation is better than the actual situation.

(End of this chapter)