LIBOR in the News: What it is, Why it's Important - Page 2
While this is bad news for Barclays and banking in general, once the furor dies down what does it mean to you and me? In actual fact the artificial quotes probably did not significantly distort borrowing costs in the overall economy. In one documented example of rate fixing, a derivatives trader put in a request to lower the three month Libor rate and it dropped half a basis point, 0.005 percentage points. Libor was 5.365 percent at the time - borrowers would hardly notice the difference.
The losses were diffused and infinitesimal with the gains concentrated, for instance rounding up or down fractions of a penny on a corporate payroll could generate a very large pot of cash and the losses would not be noticed by anybody on the payroll. Libor, however, is the rate used by traders in the $350 Trillion derivatives market, so half a basis point move equals $17.5 Billion annually!.
The real loser here is once again the banks. Their cavalier attitude towards manipulating an interest rate which underlies much of the financial systems around the world, just confirms the general public's belief about bankers - they are rotten to the core.