Minos Zombanakis, born 86 years ago on a Greek island, remembers the birth of the interest rate benchmark now at the heart of a global rigging scandal well.
“I was, more or less, if you excuse the lack of modesty, the one who started the whole thing,» he laughs, speaking by telephone from his village among citrus orchards in Crete.
Zombanakis was running the newly-opened London branch of Manufacturer’s Hanover, now part of JPMorgan, when the bank organised one of the first syndicated loans pegged to what he dubbed a London interbank offered rate (Libor) in 1969.
The $80 million loan, for the Shah of Iran, embodied the way cross-border financial markets that had been effectively closed since 1929 were being prised open – sowing the seeds for London to flourish as a global financial centre.
The ambitious bankers of that era had little idea that the rate they were using to price these loans would become a central cog in the global financial system and a benchmark for $550 trillion in contracts ranging from interest rate derivatives to home loans and credit cards.
Four decades on, that rate has been discredited by the brazen attempts of traders to game it, by the banks that have lied about their true costs of borrowing and by the regulators accused of either condoning or failing to stop manipulation.
Libor, designed to reflect a bank’s borrowing costs accurately, burst into the headlines in June when Barclays was fined a record $450 million for allowing traders to rig it and its euro cousin Euribor and for low-balling rates during the 2007/08 credit crunch. Other global banks are still under investigation.
Even regulators admit privately they were taken aback by the public and political backlash, which forced out four top Barclays directors, sparked a fraud squad probe and a string of reviews into what has been dubbed «the crime of the century».
Bankers working in London in the decades before the credit crisis, when interbank funding dried up and speculation grew that banks were being dishonest about their borrowing costs, insist there was no hint of rigging in the early days.
Stanislas Yassukovich, a veteran banker who arrived in London in the early 1960s with New York bank White, Weld