The LIBOR and Forex manipulation connection

In the 2010s, two of the biggest financial scandals in modern history shook global markets: the LIBOR rigging scandal and the Forex cartel scandal. Both involved some of the world’s largest banks—JPMorgan, Barclays, Citigroup, UBS, Deutsche Bank, and others—colluding to manipulate key benchmarks.

While LIBOR (London Interbank Offered Rate) set the price of borrowing across trillions in loans and derivatives, the WM/Reuters forex fix shaped currency exchange rates used in global trade, investment, and asset pricing.

At first glance, these markets appear different—one is about interest rates, the other about currencies. But the scandals shared striking similarities in methods, culture, and incentives, exposing how cartel-like behavior infected multiple corners of the financial system.

LIBOR: The Benchmark That Ran the World

LIBOR, introduced in the 1980s, was calculated daily based on submissions from a panel of banks estimating what it would cost them to borrow from each other.

Scope: LIBOR underpinned an estimated $350 trillion in financial contracts, from mortgages to complex derivatives.
The Manipulation: Traders pressured colleagues to submit false estimates, nudging LIBOR higher or lower to benefit their trading positions.
Exposure: Investigations from 2012 onward revealed widespread collusion across global banks.

The scandal showed how easily banks could game a benchmark critical to global finance.

Forex: The $7.5 Trillion-a-Day Market

The foreign exchange market, by contrast, is the world’s largest, with daily turnover now exceeding $7.5 trillion.

Benchmark: The WM/Reuters 4 p.m. London fix is used to price currencies in asset management, trade, and settlement.
The Manipulation: Traders colluded in secret chatrooms—named “The Cartel” and “The Mafia”—to share client order flows and coordinate trades, nudging rates during the fix.
Exposure: From 2013 onward, regulators uncovered systemic collusion by top banks.

Like LIBOR, the forex fix was meant to be impartial. Instead, it was skewed by the very institutions trusted to uphold it.

The Common Threads

1. Collusion in Elite Chatrooms

LIBOR traders emailed and called each other to coordinate submissions.
Forex traders used private chatrooms to share strategies, order books, and manipulate benchmarks.
Both relied on small groups of traders at powerful banks working together against client interests.

2. Conflicts of Interest

LIBOR submitters also traded products tied to LIBOR.
Forex traders executed client orders while trading for their own profit.
In both cases, banks acted as both referees and players.

3. Market Fragility

LIBOR’s small panel made it easy to skew.
The forex fix’s short calculation window made it vulnerable to coordinated pushes.
Benchmarks designed for efficiency became choke points for manipulation.

4. Culture of Impunity

Traders joked in messages about “helping mates out.”
Regulators later described a “cartel-like culture” where cheating was normalized.
The same “profit at all costs” mentality fueled misconduct in both scandals.

5. Repeat Offenders

Many of the same banks—Barclays, Citigroup, JPMorgan, UBS, Deutsche Bank—appeared in both LIBOR and forex cases, highlighting systemic governance failures.

Regulatory Fallout

LIBOR

Fines: Over $9 billion in collective fines.
Reforms: LIBOR is being phased out, replaced by risk-free rates like SOFR (U.S.) and SONIA (U.K.).
Criminal Cases: Some traders were prosecuted, though with mixed outcomes.

Forex

Fines: More than $10 billion across global banks.
Settlements: DOJ, CFTC, FCA, and EU regulators secured guilty pleas and reforms.
Codes of Conduct: Introduction of the FX Global Code (2017) to improve integrity.

Both scandals exposed regulators’ struggles to oversee opaque, bank-dominated markets.

Lessons Learned—or Not?

No Market Is Immune: Both scandals showed that even supposedly efficient markets can be manipulated.
Benchmark Vulnerability: Central benchmarks, if poorly designed, invite abuse.
Systemic Culture: The recurrence of misconduct across LIBOR and forex suggests deep cultural rot in investment banking.
Accountability Gaps: Despite billions in fines, relatively few individuals faced serious consequences, fueling criticism of “too big to jail.”

Why LIBOR and Forex Are Connected

The connection between LIBOR and forex manipulation goes beyond coincidence:

Same Players: The same handful of global banks dominated both markets.
Shared Incentives: Traders benefited personally and institutionally from even tiny benchmark shifts.
Overlap in Derivatives: Many products linked to LIBOR also involved forex exposure, creating incentives to rig both.
Contagion of Practice: The casual collusion in one market made similar behavior acceptable in another.

The scandals are best understood not as isolated events but as symptoms of a financial system where benchmark manipulation had become normalized.

Conclusion: A Systemic Scandal, Not an Exception

The LIBOR and forex manipulation scandals revealed how systemic collusion by cartel banks distorted the world’s most important benchmarks. LIBOR shaped global borrowing costs, while forex benchmarks underpinned international trade and investment. Both were manipulated by the same banks, using the same playbook, in the same culture of impunity.

While reforms like the LIBOR transition and the FX Global Code have improved oversight, the connection between these scandals raises a sobering lesson: as long as a few powerful institutions control critical benchmarks, the temptation to collude will remain.

For global markets to be truly fair, transparency and accountability must go beyond fines and codes of conduct—toward structural reforms that end the era of cartel banking once and for all.

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