Libor Manipulation: Cui Bono?
Mendoza College of Business, University of Notre Dame
University of Notre Dame
Jens Carsten Jackwerth
University of Konstanz - Department of Economics
University of Lugano - Institute of Finance; Swiss Finance Institute
December 8, 2014
Using data on Libor submissions from 1999 to 2012, we find weak support for the hypothesis that banks manipulate submissions to appear less risky and strong support for the hypothesis that banks manipulate Libor to generate higher cash flows. Our results are stronger for the manipulation period as identified by regulators (January 2005 to May 2009), for currencies and maturities with substantial notional amounts of interest-rate derivatives outstanding, for European banks, and for banks that have already paid fines related to manipulation. We calculate the cumulative gains in bank market capitalization due to manipulation to be $16 to $19 billion.
Number of Pages in PDF File: 59
Keywords: Libor, scandal, manipulation, factor models, operational risk
JEL Classification: G11, G12, G13
Date posted: October 18, 2013 ; Last revised: December 9, 2014
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