LETTER: Libor rigging losses another’s gain

David Gleason wrote a remarkable primer on the Libor scandal (Libor a little part of interest rigging, July 26 ) which serves as recommended reading for anyone trying to understand this crisis.

What may confound some readers is what the impact of rigging the Libor rate by a fraction of a basis point translates to in the real world. To add more perspective to this question, we can turn to research done by Morgan Stanley on this question.

It is worth putting into numerical value what the Libor rate is. It is the reference rate for about $350-trillion of financial products. Morgan Stanley estimates that Libor rigging could possibly account for $720m of profit for each of the banks under investigation over a four-year period. The obvious question would be why would banks wilfully turn a blind eye to this? The answer is simple: greed. Compensation as a percentage of investment banks’ revenue is typically 40% to 50% of their profit, and Libor rigging serves this self-interest.

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