| > Unless you can list here the "checks and balances ... The key check on Libor was that it took a pretty big conspiracy to fix it. There were approx 16 banks submitting numbers, and the process was to rank those numbers, drop the top 4 and bottom 4, then average the rest. So once you have 5 banks in your conspiracy you can sway the final result by 1/8th of the amount you lie by. And these numbers are quoted in hundredths of a percent. So, yes there was trust, but it was of the institutions in their people. They did not expect that such a big conspiracy could be mounted, for so long, without anyone calling foul. (Well, some folks did report to the Bank of England that Libor was essentially fiction, but arguably that was quite late) EDIT: And there is a balance, too. The biggest market is "interbank", i.e. banks offsetting their own cash and risk with other banks who have the opposite position. On any given day, some banks will be net payers of Libor and some will be net receivers. So, as institutions, they aren't all going to lie in the same direction. This doesn't help you if the lying is done by individuals, ignoring the impact on their own institution, encouraged by things like free coffee. |