Libor stands for the London interbank offered rate and is a benchmark interest rate used by a lot of financial institutions. Everything from credit card interest rates to mortgages to savings accounts are based on LIBOR, oftentimes stating that the rate is X% above Libor. Libor is calculated daily though the rates on most of the products we use, like mortgages and credit cards, don’t change daily with Libor. They get set at some regular interval and then reset later. It’s just one of the many important interest rates that affect us.
With Libor, it’s announced daily by the British Bankers Association and is based on the average rates on interbank loans for up to one year at the contributor banks (they are all over the world, not just in London). There are about 20 banks that are part of that “contributor” group and all of those banks received subpoenas and requests for information about how they reported their rates.
What did Barclay’s acknowledge doing? They took requests from traders at the bank, and elsewhere, and decided what rate to send in based on that. They also artificially lowered their submissions during the financial crisis to “improve the market’s perception of its financial health.”
Barclay’s agreed to pay over $450 million to settle the accusations, with other banks likely to do the same.