A recent edition of the CFA Institute Financial NewsBrief polled subscribers with the following question:
Do you think officials at the Bank of England knew the London Interbank Offered Rate was being manipulated during the financial crisis?
The pivotal juncture in the Libor scandal appears to be the collapse of Lehman Brothers Holdings. Before the collapse, the spread between actual rates paid and estimates delivered in the rate-setting process was about 6.3 basis points. After the collapse, it jumped to 40 basis points — where it remained. The Bank of England, of course, was in a position to witness all of this — the rates banks actually paid versus the rates they submitted. It’s a small wonder that of 1,179 respondents, almost 92% of professional investors see the BoE as complicit.