Li-what? June 28, 2012 at 7:22 am

Good questions from Dealbreaker, apropos the ongoing Libor issues:

If Libor isn’t just a trimmed average of some numbers that some banks tell someone from Reuters every day, then it is … the risk-free rate? The unsecured borrowing rate for AA banks? The unsecured borrowing rate for an actual assortment of disparately rated, often barely investment grade, rather tarnished banks that mostly don’t actually lend to each other?

Don’t worry, though, there are only a few hundred trillion dollars worth of contracts linked to Libor. Bob is handing back his bonus, and that is an act that one can applaud. But there are more serious issues here than an attempt to move the rate – like what happens to all those swaps that reference 3 or 6 month Libor in a world where there is little or no 3 or 6 month unsecured borrowing by banks.

2 Responses to “Li-what?”

  1. Dude, why the fuss? Proper good of Barclays to keep their head below the parapet by making LIBOR lower than it wld have otherwise been. Massively helpful in 2009 (unless they went too far and got trimmed…:)

  2. Yeah, there is an argument that pre-crisis the over-bids had a very small effect, but post-crisis the under-bids were most helpful. I don’t think it will get a lot of traction though…