Why should the FED, ECB or IMF monitor such transactions? When derivatives' are up for a price in the financial industry, it can mean that banks are trading debt and debt payments. It's an exchange of alternating current payments for a more direct current payment. The bets can be made without an actual money exchange, but rather a rate exchange as one bank trades a fixed rate for a variable rate from another. For those that are low on cash, they may exchange their higher rate long term debt, for a lower rate short term debt, basing the difference on the current LIBOR. The transactions should be monitored to keep the banks honest as to what rate they are actually paying on traded debt, as the books can represent a different outlook depending on the institutions optimism on its debt.
According to the Barclays' Group website, the financial institution has been recognized and awarded for its rate derivatives business. Barclays' is now under investigation for manipulation of the LIBOR (the rate that banks lend funds to each other). Their 2008 interest rate derivatives award may have been packed up with the belongings of Robert Diamond, who recently resigned as CEO. Or it could be in the box of one of the many other resigning officials, who have recently left Barclays. The real award remains with the people, who obtained a lower rate on their own financing than they would have had the LIBOR been set higher. Anonymous called the FED, reported the crime and then finished the call with, "But mom, everybody's doing it."
Greater damage could have fallen on the market, had the FED and other regulators reacted with a stricter punishment at the time of the anonymous call. A low LIBOR is a good LIBOR. With the housing crisis, consumers lost faith in the banks. Regulators would not have wanted to worsen the effect in 2008, by announcing that banks were gambling away their assets with a bid of black or red? We're gonna get you later regulator. Right now we're still focused on Barclays.
Barclays was a trend setter in the rate scandal, which has now led to the investigation of other large international banks. Aside from the fine, Barclays will be replaced as a rate setter in UAE. The EIBOR, not to be confused with the LIBOR, is where the rich banks of Dubai get their interbank rates. The rate scandal will have an affect worldwide. Lucky for us, analysts are ready to shed some light on what the appropriate move is. There is more than one way to manipulate a market.
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