Libor Interest Scandal

Libor Interest Scandal

Part 1: Article

Article 1: “Libor Scandal Shows Many Flaws in Rate-Setting”, By Eavis P. & Popper N., July 19, 2012 7:34 p.m. http://dealbook.nytimes.com/2012/07/19/libor-scandal-shows-many-flaws-in-rate-setting/

Part 2: Ethical Violations

The banking and finance industry receive plenty of barriers in terms of ethical principles for their performance, on one hand by the regulatory hand of the legislator, the other by the self-regulation of their professional associations. Every organization, whether public or private, has some code of ethics and is responsible for adherence to this Code (Koslowski, 2012).

Code Violation 1:

Section I, Clause 4 states that engineer must engage in acts that consider each client or employer as faithful trustee or agent. If Libor is analyzed from a regulatory perspective, it can be seen that Libor is not a listed financial institution that also makes sanctioning of offenders difficult. In other words, the nature of Libor scandal is very complicated can be classified as a financial market abuse (Amos, 2012).

Article Text in Support

The article indicates in the opening lines that most of the rates set for mortgages and loans are based on the banks's guess work that means banks are deviating form the NSPE codes of ethical working by avoiding the concerns of clients.

Impact of Ethical Violation

The ethical violation of Libor caused a rotten financial market that had a direct impact on each banks and customers in relation to their students, car or home loans schemes (The Economist, 2012). In other words, it would not be wrong to say that it not only affects banks but also public including students and homeowners who have mortgage. The economists believe that the entire market is affected by the Libor scandal. It can be seen that Libor had a direct impact on the lives of ordinary citizens. In addition, homeowners with a mortgage are also affected as their mortgage system was based on LIBOR plus margin (The Economist, 2012).

Code Violation 2:

Section I, Clause 6: Conduct themselves honorably, responsibly, ethically, and lawfully so as to enhance the honor, reputation, and usefulness of the profession.

Article Text in Support

The claims made in the article are based on market research and observation that show banks using the estimation techniques to set the rates rather than following the real market trends. Hence, it might be claimed that the banks are dishonoring their clients by engaging in unethical practices that might have severe consequences for both parties and the economy of the country.

Impact of Ethical Violation

It is vital to understand that every organization including banks is responsible to protect not only its employees but also the interest of their clients or customers (Koslowski, 2012). In the banking sectors, the rate is calculated on the basis of estimates of the interest owed by large international banks in relation to loans they grant each other.

The Libor-scandal also supports the view that the banking sector has become too complex to regulate it more effectively and trading activities of financial institutions should be limited in order to prevent any ethical violations. Today, the interbank deposit market, is ...