Adair Turner: Libor and the gorilla

Lord Turner has used the famous “gorilla and the basketball” test to explain what happened when banks were found to have manipulated Libor to try to make their businesses appear more secure.

Regulators were criticised for being too slow to pick up the problem.

Essentially, the gorilla and basketball test deals with the phenomenon of “inattention blindness” a person is so busy looking for one thing that he or she misses something which should be obvious.

Watching a video, people are asked to count how many times a basketball team pass the ball. Viewers concentrate on counting and miss a man in a gorilla suit who walks across the middle of the court, below.

Lord Turner’s defence on Libor is that regulators were so concerned about the possible implosion of the market they missed the problem of “low-balling” rates.

“You are on a call with the money market desk and you are trying to understand if there is a liquidity crisis and a small gorilla walks across the stage which is low-balling, and it’s a 30-second fragment out of a 30-minute conversation,” he said.

The more serious discovery of manipulating the market to gain on bank trades only came to light when the low-balling inquiry began and Lord Turner said that on that issue British regulators were as rapid in their investigations as in the US.

He also argued that new technology to spot suspicious activity was needed as it was not possible to hire “tens of thousands” of regulators to keep tabs on all trades.