The financial crisis showed how important Libor had become in globalised markets – the rigging scandal showed how much it had been abused

Libor first shot to prominence during the financial crisis when it emerged as a signal that banks were panicking. This is because Libor – shorthand for the London interbank offered rate – is the price banks estimate their rivals will want to lend to them at. During the crisis, those banks that admitted they expected to be charged the highest interest rates by their peers were perceived to be the riskier ones.

The £290m fine for rigging the rate imposed on Barclays in 2012 shed Libor in an entirely different light. The penalty and subsequent ones imposed on banks and brokers showed that the rates themselves were being manipulated. It also meant they may not have been a true reflection of wider borrowing costs paid by companies and households worldwide.

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Source: The Guardian Circular Economy RSS