LIBOR—AN “IMPOSSIBLE” CARTEL? LIBOR (the “London Interbank Offered Rate”) has been for many years the benchmark used in all kinds of borrowing documents. For example, a loan document (such as a mortgage agreement) might set the interest rate payable for a period based on LIBOR plus a fixed amount. As this wikipedia article describes, LIBOR rates were set on a daily basis based on submissions from specified large banks as to the interest rate each such bank would be charged if it were borrowing from other banks. The wikipedia article identifies the 18 banks that are involved in setting US Dollar LIBOR. The article also describes the events in the scandal.
It was thought that collusion in setting LIBOR was impossible because the large number of banks involved in making submissions to determine the daily rates (18 or so) would make it too difficult to coordinate price fixing. In addition, since a bank could be on either side of a borrowing transaction, a systematic attempt to rig LIBOR was implausible.
In fact, LIBOR was rigged. Barclays paid a $450 million fine for its role in the LIBOR scandal, and UBS has just agreed to pay $1.5 billion for its role.