FEW people had any idea what Libor, the London interbank offered rate, was until until the financial collapse forced a greater interest in the working of banks.
Yet the obscure process is the crucial mechanism used used to set interest rates for mortgages, loans and savings and is the benchmark for an estimated £222 trillion of worldwide financial contracts.
Five years ago a sharp rise in Libor provided an early warning of the downturn as banks started to charge each other more to borrow money. Inevitably, the banks protect their profit margins by increasing the cost to the millions of borrowers now facing rising mortgage rates. With the revelations that Barclays attempted to manipulate the global rate, they now know that their extra payments are the result of illegal fixing of the rate by bank traders who effectively lied about what it was costing the bank to borrow money.
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