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LIBOR Scandal
Mortgage Cycles
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Investment Banker
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Investment Banker
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Investment Banker
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Investment Banker
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Traditional Model
Home Buyer
1
Mortgag
e Loan
Repayme
nts
Banks have
financed their
mortgage lending
through the
deposits they
receive from their
customers.
Limited the amount
of mortgage
lending they could
do.
Bank
Home Valuation
Income Check
1
2
Bank grants
mortgage
Homebuyer pays
bank
Sub-Prime Model
Home Buyer
Mortgage
broker
Repayme
nts
Bank
Mortgag
e Bond
Rating
Agencies
Bond
Payment
s
Mortgage Bond
market
They specialised in
new types of
mortgages, such as
sub-prime lending to
borrowers with poor
credit histories and
weak income,
undocumented
immigrants who were
shunned by the
"prime" lenders like
Freddie Mac.
Started as a
general store at
1844
4th largest
investment
bank in US
25,000
employees
worldwide
In 2007,
Lehman
underwrote
moremortgagebacked
securitiesthan
any other firm
$85-billion
portfolio, or four
times its
shareholders'
Leverage ratio,(ratio of
assets to owners equity),
increased from
approximately 24:1 in
2003 to 31:1 by 2007.
Lehman
Brothers
While generating
tremendous profits during
the boom, this vulnerable
position meant that just a
34% decline in the value
of its assets would entirely
eliminate its book value of
equity.
What is LIBOR
Investors
Economists &
Central Bankers
Impact on India
LIBOR Scandal
mber banks were colluding and were falsely inflating or deflating the borrowing ra
Motive for manipulating the rates
June
2012
Barclays: $450
Million
Settlement:,
Barclays
accused of
falsely reporting
lower rates
2005-2009,
Dec
2012
UBS: $1.5 Billion
SettlementJustice
Deparment files
criminal charges
against two UBS
traders;
Feb 2013
Royal Bank of
Scotland: $612
Million Fine;
Japanes unit
forced to plead
guilty in criminal
wrongdoing
Oct 2013
Rabobank: $1
Billion
Settlement;
Chairman Piet
Moerland
resigns
Dec
8 Financial
2013
Institutions: $2.3
Billion Fine: EU
fined Citigroup,
JPMorgan Chase,
Deutsche Bank,
Royal Bank of
Scotland and
Socit
Gnraleand 3
others
Apr 2015
Deutsche Bank
will pay a $2.5
billion penalty to
United States
and British
authorities.
Institutions Involved
Barclays
Bank of
America
BTMU
Citi
Credit
Suisse
Deutsche
Bank
Lloyds
HSBC
HBOS
JP Morgan
Rabo
Bank
RBC
RBS
UBS
West LB
Norinchuc
kin