Life As Libor Traders Knew It

Traders say discussions on setting the rate were routine after the money markets froze in 2007.

Regulators probing the alleged manipulation of global interest rates are focusing on what traders involved in setting the benchmark say were routine discussions condoned by their superiors.

Staff responsible for submissions to the London interbank offered rate regularly discussed where to set the measure with traders sitting near them, interdealer brokers and counterparts at rival banks, according to money-market traders with direct knowledge of procedures at three firms. The talks became common practice after money markets froze in 2007, making it difficult for individual bankers to gauge the cost of borrowing from other lenders, said the traders, who asked not to be identified because they weren’t authorized to speak about the subject.

Reluctance to Lend

The difference between three-month dollar Libor and the overnight indexed swap rate, an indicator of banks’ reluctance to lend to each other, peaked at a record 364 basis points on Oct. 10, 2008. The spread averaged about 10 basis points in the five years up to the collapse of Lehman Brothers Holdings Inc. and has averaged 45 basis points since.

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