LIE-BOR

• Bloomberg Businessweek – UBS Says U.S. Is Probing Possible Libor Rate Manipulation
  UBS AG, Switzerland’s biggest bank, said it received subpoenas from U.S. authorities investigating possible attempts to manipulate the setting of the London interbank offered rate. The company received subpoenas from the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice, Zurich-based UBS said in its 2010 annual report published today. The bank also received an order to provide information to the Japan Financial Supervisory Agency concerning “similar matters,” it said. “UBS understands that the investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor rates at certain times,” the bank said. “UBS is conducting an internal review and is cooperating with the investigations.” Libor rates are set daily by the British Bankers’ Association, based on data it gets from a panel of banks on what it would cost them to borrow funds for various periods of time and in different currencies. The validity of Libor, a benchmark for more than $350 trillion of derivatives and corporate bonds, was questioned during the credit crisis as banks became wary of lending to each other because of mounting losses.
• American Banker – Probe of UBS Shows It’s Now Safe for Regulators to Question Libor
  Over the last three years, analysts have regularly cast a skeptical eye on the accuracy of Libor, which is calculated by averaging 16 global banks’ self-reported borrowing costs. Even in times when some individual banks’ credit default swap rates soared — showing the market deemed those institutions riskier than the rest — the 16 panel members’ contributions to Libor remained in near-lockstep. During the financial crisis and its aftershocks, this situation benefited both the reporting banks and borrowers. Banks could ill afford any perception that their global peers were afraid to lend to them. Millions of homeowners and other borrowers whose payments were tied to Libor were struggling enough already. But the statistic’s moves were hardly intuitive. “I started calling it Lie-bor in late 2008,” said James Bianco, president of Bianco Research, noting the lack of documentation that accompanied each bank’s contributions to the benchmark. “At the end of the day, a lot of these companies did not want to show that their funding rates were diverging from the pack.” UBS was one bank that invited particular scrutiny, Bianco said, simply because of its mammoth size in relation to the Swiss Central Bank. “There was concern that they were too big for the Swiss government to handle,” he said — but those fears never really seemed to show up in the company’s Libor rate contributions.

• The Financial Times – Big banks investigated over Libor
  Regulators in the US, Japan and UK are investigating whether some of the biggest banks conspired to “manipulate” the benchmark interest rate used to calculate the cost of billions of dollars of debt. The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor – the estimated cost of borrowing for banks between each other. In particular, the investigation was looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said. The probe came to light on Tuesday when the Swiss bank UBS disclosed in its annual report that it had received subpoenas from three US agencies and an information demand from the Japanese Financial Supervisory Agency.

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