The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. The London Interbank Offered Rate (Libor) is a flagship instrument used all over the world, affecting what banks, businesses and homeowners pay to borrow money.
The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were
Swiss bank UBS swallowed a $1.5 billion fine and admitted to fraud on Wednesday after a global probe revealed its staff orchestrated the manipulation of benchmark interest rates over three continents. UBS traders colluded with brokers to rig the Libor rate, which is used to price trillions of dollars worth of loans worldwide, rewarding them for their help. They also teamed up with traders at other banks.
Libor is used in U.S. derivatives markets, an attempt to manipulate Libor is an attempt to manipulate U.S. derivatives markets, and thus a violation of American law.
The penalty agreed was not agreed with only U.S. but also with UK and Swiss regulators and is more than three times the $450 million fine levied on Britain’s Barclays in June for rigging the Libor benchmark rate used to price financial contracts around the globe.
It is the second-largest fine paid by a bank and comes a week after Britain’s HSBC agreed to pay the biggest ever penalty – $1.92 billion – to settle a probe in the United States into laundering money for drug cartels.