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The Manipulation Potential of Libor and Euribor

Author

Listed:
  • Alexander Eisl
  • Rainer Jankowitsch
  • Marti G. Subrahmanyam

Abstract

The London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) are two key benchmark interest rates used in a plethora of financial contracts. The integrity of the rate†setting processes has been under intense scrutiny since 2007. We analyse Libor and Euribor submissions by the individual banks and shed light on the underlying manipulation potential for the actual and several alternative rate†setting procedures. We find that such alternative fixings could significantly reduce the effect of manipulation. We also explore related issues such as the sample size and the particular questions asked of the banks in the rate†setting process.

Suggested Citation

  • Alexander Eisl & Rainer Jankowitsch & Marti G. Subrahmanyam, 2017. "The Manipulation Potential of Libor and Euribor," European Financial Management, European Financial Management Association, vol. 23(4), pages 604-647, September.
    • Handle: RePEc:bla:eufman:v:23:y:2017:i:4:p:604-647
    DOI: 10.1111/eufm.12126
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    References listed on IDEAS

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    2. Herrera, Rubén & Climent, Francisco & Carmona, Pedro & Momparler, Alexandre, 2022. "The manipulation of Euribor: An analysis with machine learning classification techniques," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    3. Kirti, Divya, 2022. "What are reference rates for?," Journal of Banking & Finance, Elsevier, vol. 144(C).
    4. Priyank Gandhi & Benjamin Golez & Jens Carsten Jackwerth & Alberto Plazzi, 2019. "Financial Market Misconduct and Public Enforcement: The Case of Libor Manipulation," Management Science, INFORMS, vol. 65(11), pages 5268-5289, November.
    5. Philippos Louis & Matías Núñez & Dimitrios Xefteris, 2019. "Trimming Extreme Opinions in Preference Aggregation," University of Cyprus Working Papers in Economics 12-2019, University of Cyprus Department of Economics.
    6. Li, Ming & Sun, Hang & Zong, Jichuan, 2021. "Intertemporal imitation behavior of interbank offered rate submissions," Journal of Banking & Finance, Elsevier, vol. 132(C).
    7. Robert Jarrow & Siguang Li, 2023. "Interest rate swaps: a comparison of compounded daily versus discrete reference rates," Review of Derivatives Research, Springer, vol. 26(1), pages 1-21, April.
    8. Pontines, Victor & Rummel, Ole, 2023. "LIBOR meets machine learning: A Lasso regression approach to detecting data irregularities," Finance Research Letters, Elsevier, vol. 55(PA).
    9. Aquilina, Matteo & Ibikunle, Gbenga & Mollica, Vito & Steffen, Tom, 2022. "The visible hand: benchmarks, regulation, and liquidity," Journal of Financial Markets, Elsevier, vol. 61(C).
    10. Louis, Philippos & Núñez, Matías & Xefteris, Dimitrios, 2023. "Trimming extreme reports in preference aggregation," Games and Economic Behavior, Elsevier, vol. 137(C), pages 116-151.
    11. Nuria Boot & Timo Klein & Maarten Pieter Schinkel, 2017. "Collusive Benchmark Rates Fixing," Discussion Papers of DIW Berlin 1715, DIW Berlin, German Institute for Economic Research.
    12. Chukwudi Henry Dike, 2020. "Strategic Interactions in Financial Networks," 2020 Papers pdi579, Job Market Papers.
    13. Müller, Alexander & Paulick, Jan, 2020. ""The devil is in the details, but so is salvation": Different approachesin money market measurement," Discussion Papers 66/2020, Deutsche Bundesbank.
    14. Zhang, Anthony Lee, 2022. "Competition and manipulation in derivative contract markets," Journal of Financial Economics, Elsevier, vol. 144(2), pages 396-413.
    15. Lartey, Theophilus & James, Gregory A. & Danso, Albert & Boateng, Agyenim, 2023. "Interbank market structure, bank conduct, and performance: Evidence from the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 1-25.
    16. Rodríguez-López, Araceli & Fernández-Abascal, Hermenegildo & Maté-García, Jorge-Julio & Rodríguez-Fernández, José-Miguel & Rojo-García, José-Luis & Sanz-Gómez, José-Antonio, 2021. "Evaluating Euribor Manipulation: Effects on Mortgage Borrowers," Finance Research Letters, Elsevier, vol. 40(C).
    17. Nuria Boot & Timo Klein & Maarten Pieter Schinkel, 2017. "Collusive Benchmark Rates Fixing," Tinbergen Institute Discussion Papers 17-122/VII, Tinbergen Institute, revised 17 Apr 2019.
    18. Loertscher, Simon & Marx, Leslie M., 2020. "A dominant-strategy asset market mechanism," Games and Economic Behavior, Elsevier, vol. 120(C), pages 1-15.
    19. Dániel Béres, 2019. "Integrity of Financial Benchmarks," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 18(1), pages 33-59.

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