Can Mark Carney Save the World from a Second Financial Crisis?
After the London Interbank Offered Rate, or Libor, proved to be susceptible to manipulation, new Bank of England head Mark Carney is looking for ways to prevent such a scandal from happening again.
The G20 set up an oversight committee called the Financial Stability Board, which will be chaired by Carney, as he looks for alternatives or solutions to the Libor rate. The rates they look for will be such “that [they] meet the private sector’s needs,” although the new Bank of England head did admit, “We have to recognize that even some transaction-based benchmarks could be manipulated; it depends on the depth of the market.”
The Libor rate was manipulated in 2008 during the financial crisis, when banks were understating the borrowing costs they incurred to Libor. This was an attempt to lower the benchmark rate and artificially reduce lending costs across the sector. However, such behavior could have misconstrued the health of the market as well as enabled banks to borrow more than they could afford.