Here’s an interesting follow-up to our Libor post a few days ago. 

The BBA (British Bankers’ Association) decided on Wednesday to speed up an inquiry into the daily borrowing rates that banks are reporting which are then used to calculate the Libor (London Interbank Offered Rate). 

The crux of the issue is this – there has been growing concern and skepticism that the Libor rates have been artificially depressed given that banks did not want to report the high interest rates they’ve been paying for short-term cash loans, as they did not want to appear in dire need of cash. 

Now that the investigation has begun, the Libor has bumped up on each of the past three days, and likely will have again today.  If this correction continues, the trillions of dollars of floating rate corporate and mortgage notes will reset higher, and interestingly Libor rates are often used as benchmarks in derivatives also. 

Searching for analyst commentary this morning it appears that the majority opinion be articulated currently is that Libor is 0.3 to 0.4 points low at this time, and that corrections will continue as banks come clean with their short term rate data.  

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