I could never understand how the LIBOR screens carried such power with market participants and on numerous occasions I asked the question “Who in the market actually borrows at that rate?” …well, nobody it seems actually did borrow at that rate judging by the trouble that Barclays and other money centre banks find themselves in. Actual borrowing rates were quoted as LIBOR +/- a spread e.g. LIBOR + 100bp, so that manipulating the LIBOR-base influenced nearly all other lending in the markets.
LIBOR’s downfall lies with the fact that there weren’t any actual loans that any bank could point to as evidence of the price. Well guess what? Swap markets generally face the same criticism, as do many of the OTC markets that flash numbers on screens and are taken as gospel when pricing deals or calculating settlement prices.
This is a huge issue that will not be solved by a fine and an enquiry. The OTC markets need to move to an exchange basis where real transactions are recorded at real prices in real time.