The misconduct relates to the setting of the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor). But what are these rates and how are consumers likely to be affected.
= What is Libor? =
Libor stands for London Interbank Offered Rate and is the rate lenders pay to borrow from each other. It essentially measures the confidence the banks have in each other and is crucial in the pricing of mortgage and savings rates. The Euribor is similar, but of course measure the rates at which European banks lend money to each other.
= When is it set? =
The Libor rate is set daily by the British Bankers Association in conjunction with a number of the larger lenders.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘The main focus is on three-month Libor, which is a margin above where the markets think the Bank of England base rate will be in three months’ time. Libor increases when banks are less willing to lend to each other, because they are worried about each other’s liabilities, for example, and when there is more demand for money.’
= How does this affect my mortgage? =
Only certain mortgages are directly linked to Libor but the rate does have an impact on the pricing of new short-term mortgages, such as two-year trackers, as lenders borrow against Libor, not base rate. Adrian Anderson, director of mortgage broker Anderson Harris, says: ‘The pricing of Libor has an impact on the rates offered by lenders on short-term variable rate mortgages, such as two-year base rate trackers. When three-month Libor falls, the pricing on new base-rate trackers usually falls and similarly, when Libor rises, so too does the pricing of trackers. Other factors also come into play but the effect of Libor’s pricing is significant.’