What did rate rigging mean for borrowers?

A record fine has been imposed by the Financial Services Authority (FSA) on Barclays for misconduct in the setting of London Interbank Offered Rate (LIBOR) and Euro Interbank Offered Rate (EURIBOR). This took place over the course of a number of years and involved a ‘significant’ number of employees.

The serious nature is clear as the FSA dished out its biggest ever fine of more than £59m and worryingly there is an expectation that other banks will also be involved.

The interbank rates are set each day to indicate the rate at which banks are able to borrow from other banks. LIBOR is used as a benchmark by global markets and therefore of “fundamental importance to both UK and international financial markets”.

Barclay’s staff were found to be influencing the setting of these rates to suit their own requirements rather than give an accurate and true reflection or real rates. This meant the rate was pushed up at times to benefit traders. In the wake of the credit crisis when the dislocation between LIBOR and Base rate saw mortgage rates rocket it was kept lower to try and improve market perception.

But is all this chicanery of any real consequence to mortgage borrowers? A small minority of borrowers will have a mortgage rate directly linked to LIBOR, usually from a specialist credit impaired or Buy to Let lender. They could have lost out when LIBOR was pushed up but could equally have benefited from lower rates during the crisis.

Most borrowers will have little to worry about. Before the credit crisis the mortgage market was so competitive that any slight manipulation of LIBOR is unlikely to have translated through into mortgage rates.

During the crisis Barclays attempted to make its position look better by driving the rate down. However the mortgage market was in a spin at that point, so it’s also doubtful that it made a great deal of difference.

However the latest revelation is a profoundly shocking one and does nothing to improve the already tarnished image of banks.

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