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LIBOR: origins, economics, crisis, scandal and reform

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  • David Hou Author-Name: David Skeie

Abstract

The London Interbank Offered Rate (LIBOR) is a widely used indicator of funding conditions in the interbank market. As of 2013, LIBOR underpins more than $300 trillion of financial contracts, including swaps and futures, in addition to trillions more in variable rate mortgage and student loans. LIBOR's erratic behaviour during the financial crisis fuelled market instability, simultaneously provoking questions surrounding its credibility. Ongoing regulatory investigations have uncovered misconduct by a number of financial institutions. Policymakers across the globe now face the task of reforming LIBOR in the aftermath of the scandal and crisis.

Suggested Citation

  • David Hou Author-Name: David Skeie, 2013. "LIBOR: origins, economics, crisis, scandal and reform," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
  • Handle: RePEc:pal:dofeco:v:7:year:2013:doi:3910
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    References listed on IDEAS

    as
    1. Acharya, Viral V. & Skeie, David, 2011. "A model of liquidity hoarding and term premia in inter-bank markets," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 436-447.
    2. Darrell Duffie & David R. Skeie & James Vickery, 2013. "A sampling-window approach to transactions-based Libor fixing," Staff Reports 596, Federal Reserve Bank of New York.
    3. François-Louis Michaud & Christian Upper, 2008. "What drives interbank rates? Evidence from the Libor panel," BIS Quarterly Review, Bank for International Settlements, March.
    4. John Taylor & John Williams, 2008. "Further Results on a Black Swan in the Money Market," Discussion Papers 07-046, Stanford Institute for Economic Policy Research.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Eclipsing LIBOR
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-09-04 17:29:38

    Citations

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    Cited by:

    1. Abdul Karim Aldohni, 2018. "Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis," Journal of Business Ethics, Springer, vol. 151(1), pages 265-278, August.
    2. Mikhail V. Oet & John M. Dooley & Stephen J. Ong, 2015. "The Financial Stress Index: Identification of Systemic Risk Conditions," Risks, MDPI, Open Access Journal, vol. 3(3), pages 1-25, September.
    3. Alfred Wong & Jiayue Zhang, 2018. "Breakdown of covered interest parity: mystery or myth?," BIS Papers chapters, in: Bank for International Settlements (ed.), The price, real and financial effects of exchange rates, volume 96, pages 57-78, Bank for International Settlements.
    4. Eross, Andrea & Urquhart, Andrew & Wolfe, Simon, 2016. "Liquidity risk contagion in the interbank market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 142-155.
    5. Andrzej Cwynar & Wiktor Cwynar & Monika Baryła-Matejczuk & Moises Betancort, 2019. "Sustainable Debt Behaviour and Well-Being of Young Adults: The Role of Parental Financial Socialisation Process," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-26, December.
    6. Jonathan A. Batten & Igor Lončarski & Peter G. Szilagyi, 2018. "When Kamay Met Hill: Organisational Ethics in Practice," Journal of Business Ethics, Springer, vol. 147(4), pages 779-792, February.
    7. Thomas B. King & Kurt F. Lewis, 2015. "Credit Risk, Liquidity and Lies," Finance and Economics Discussion Series 2015-112, Board of Governors of the Federal Reserve System (U.S.), revised 18 Dec 2015.
    8. Elizabeth C. Klee & Zeynep Senyuz & Emre Yoldas, 2016. "Effects of Changing Monetary and Regulatory Policy on Overnight Money Markets," Finance and Economics Discussion Series 2016-084, Board of Governors of the Federal Reserve System (U.S.), revised Sep 2016.
    9. Alfred Wong & David Leung & Calvin Ng, 2016. "Risk-adjusted Covered Interest Parity: Theory and Evidence," Working Papers 162016, Hong Kong Institute for Monetary Research.
    10. Yoldas, Emre & Senyuz, Zeynep, 2018. "Financial stress and equilibrium dynamics in term interbank funding markets," Journal of Financial Stability, Elsevier, vol. 34(C), pages 136-149.
    11. Aryal, Gaurab & Gabrielli, Maria F., 2012. "Is Collusion Proof Auction Expensive? Estimates from Highway Procurements," MPRA Paper 57353, University Library of Munich, Germany, revised 19 Feb 2014.
    12. Thomas B. King & Kurt F. Lewis, 2014. "What Drives Bank Funding Spreads?," Working Paper Series WP-2014-23, Federal Reserve Bank of Chicago, revised 13 Nov 2014.
    13. Ren'e Aid & Giorgia Callegaro & Luciano Campi, 2019. "No-Arbitrage Commodity Option Pricing with Market Manipulation," Papers 1909.07896, arXiv.org, revised Mar 2020.
    14. Kleinow, Jacob & Moreira, Fernando, 2016. "Systemic risk among European banks: A copula approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 27-42.
    15. Darrell Duffie & Jeremy C. Stein, 2015. "Reforming LIBOR and Other Financial Market Benchmarks," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 191-212, Spring.
    16. Darrell Duffie & Piotr Dworczak, 2014. "Robust Benchmark Design," NBER Working Papers 20540, National Bureau of Economic Research, Inc.
    17. Alfred Wong & David Leung & Calvin Ng, 2016. "How do housing purchase limits affect firm default risks in Mainland China?," Working Papers 172016, Hong Kong Institute for Monetary Research.
    18. Aurelio F. Bariviera & M. Belen Guercio & Lisana B. Martinez & Osvaldo A. Rosso, 2015. "A permutation Information Theory tour through different interest rate maturities: the Libor case," Papers 1509.00217, arXiv.org.

    More about this item

    Keywords

    LIBOR; financial crisis; scandal; interbank; banking; reference rate; interest rate;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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