Understanding the LIBOR Scandal: The Historical, the Ethical, and the Technological

Abstract

This article examines the conception of banking regulation through the lens of the LIBOR scandal. The narrative of the scandal addresses the debate surrounding the public versus private view of banking regulation. Employing an analytical framework developed through reassembling prevailing regulation theories that is contextualized to the banking industry, we analyze the historical, ethical, and technological aspects of the LIBOR scandal and subsequent reform. We argue that the narrative of the LIBOR scandal represents a typical regulatory capture in the private interest view of regulation. However, the benchmark reform appears to concur with the recent paradigm shift towards the public interest approach to banking regulation that involves more intrusive and detailed supervision with a focus on structural bank regulation.

Keywords: banking regulation, financial innovation, financial system, regulatory capture

JEL Classification: N20, N40