Along with the rest of the financial world Enables Independent Financial Advisors have been shocked but the revelations of attempts to manipulate LIBOR and other rates is truly shocking. The deeper reason for concern is not just because for it’s effect on financial contracts ranging from mortgages to derivatives but the capital markets require trust if they are to work well. If you cannot trust the intermediaries who make up those markets to operate with integrity, that has a corrosive effect on the whole system.
Investment managers need well-functioning markets if they are to be able to invest their clients' money to deliver the best possible returns and that requires high standards from the intermediaries, in particular the investment banks. This episode - and no doubt the revelations that will continue to unravel as the enquiries proceed – suggest that those standards have not been met. Investment managers, who are key users of the markets, have reacted to these events with concern and anger. Many are asking whether their clients have lost out as a result, but at this stage it is very hard to say.
Until there is a fuller picture of what other banks were doing it is impossible to say whether the result was a LIBOR rate that was different from what it should have been. And even then tracking through to establish what, if any, the effect on individual portfolios would have been - via the closing of derivative positions, for example - would be mind-bendingly complex.
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