Professor Raghavendra Rau on the LIBOR rate fixing scandal that is dragging in top British, American, German and Swiss banks
A leading financial expert suggests that the government-commissioned Wheatley Review into the LIBOR rate rigging allegations should make the banks put their money where their mouths are.
Professor Raghavendra Rau, Rothschild Professor of Finance at Cambridge Judge Business School and a former Principal at Barclays Global Investors, says the answer to LIBOR setting is ‘pretty straightforward’.
In an interview for the School’s website he says if a bank says it is willing to lend at a LIBOR rate of two per cent, take it, even if the true figure is four per cent:
“If the bank actually has that money, it’s fine, but if four per cent is the right number it’s going to be losing money.
“Pick two banks or three banks at random and make them execute on £1m or £10m. If it hurts, they’ll learn very rapidly not to quote fake numbers. The numbers have to be substantial though; £2m over a period of 10 days, if they are quoting too high a number, is definitely going to hurt them!”