The Fix Is in : Detecting Portfolio Driven Manipulation of the Libor

The London Interbank Offered Rate (Libor) is a set of vital benchmark interest rates to which hundreds of trillions of dollars of financial contracts are tied. The rates are set each day via a survey of large banks. In recent years, strange behavior of the rates have caused observers to question its proper function and some to suggest overt manipulation as the cause. Subsequent regulatory investigations have culminated in admissions of manipulation by at least three Libor panel banks. In this paper we develop tests for manipulation based on a model of bank submissions to the survey. Our results suggest manipulation was widespread and may have persisted into the more recent past, somewhat at odds with the picture painted by publicly available sources