Collusive Benchmark Rates Fixing

53 Pages Posted: 27 Jan 2018

See all articles by Nuria Boot

Nuria Boot

German Institute for Economic Research (DIW Berlin); KU Leuven

Timo Klein

Utrecht University School of Economics; Oxera Consulting LLP

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Multiple version iconThere are 3 versions of this paper

Date Written: December 2017


The fixing of the Libor and Euribor benchmark rates has proven vulnerable to manipulation. Individual rate-setters may have incentives to fraudulently distort their submissions. For the contributing banks to collectively agree on the direction in which to rig the rate, however, their interests need to be sufficiently aligned. In this paper, we develop cartel theory to show how an interbank lending rates cartel can be sustained by preemptive portfolio changes. Exchange of information facilitates front running that allows members to reduce conflicts in their trading books. Designated banks then engage in eligible transactions rigging to justify their submissions. As the cartel is not able to always find stable cooperative submissions against occasional extreme exposure values, there is episodic recourse to non-cooperative quoting. Periods of heightened volatility in the rates may be indicative of cartelization. Recent reforms to broaden the class of transactions eligible for submission may reduce the level of manipulation, but can lead to more frequent collusive quoting.

Keywords: Libor, Euribor, IRD, Banking, Cartel, Insider Trading

JEL Classification: E43, G14, G21, K21, L41

Suggested Citation

Boot, Nuria and Boot, Nuria and Klein, Timo and Klein, Timo and Schinkel, Maarten Pieter, Collusive Benchmark Rates Fixing (December 2017). DIW Berlin Discussion Paper No. 1715, Available at SSRN: or

Nuria Boot (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000

Timo Klein

Utrecht University School of Economics ( email )

Vredenburg 138
Utrecht, 3511 BG

Oxera Consulting LLP ( email )

Alfred Street
Oxford OX1 4EH
United States

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

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