The second problem was that, at the height of the crisis in 2008, nobody knew which banks were safe. The price a bank had to pay to borrow from another bank was an indicator of what banks thought of each other. Nobody wanted to be at the top of that list so again there was an incentive to lie and put in a lower figure. This was made more complex by the fact that at the time, banks effectively stopped lending to each other. So there were very few actual trades to inform the decision.
Banks were further encouraged to make it look like their borrowing costs were lower than they actually were because the transparency in the system contained a fatal flaw: banks' individual submissions were published immediately. This gave an instant indication of their creditworthiness.
What's more and worse, is that we are not talking about a few rogue individuals here, but a systemic problem. In the case of Barclays for example there was a web of traders that worked together to try and manipulate LIBOR to benefit one another.
To sum up, the system had in-built conflicts of interest from the start – banks could submit what they wanted – and with traders' bonuses dependent on the LIBOR rate, and no bank wanting to be seen as vulnerable in such a transparent system, too many people had a vested interest in gaming the system.

Lack of oversight
The second fundamental flaw was a lack of oversight.
As we all know the British Bankers' Association is currently responsible for the day-to-day running of LIBOR. Oversight of LIBOR is the responsibility of a committee set up by the BBA with two subcommittees looking at unresolved problems and disciplinary procedures respectively. The only problem is that these committees hardly ever met.
This is symptomatic of a careless approach that did not place enough emphasis on the importance of LIBOR from both a governance and regulatory perspective – essentially, people had an overt level of trust in a system that did not have the right level of checks and balances in place.
And the contributing banks themselves? What did they do? One bank we know of made no effort at all to aid credible submissions and has now paid the price. Other banks will follow.
Organisations and individuals were basically left unchecked and were free to act without scrutiny, leading to abuse of the system – they essentially exploited the lack of checks and balances. This is not good enough –just because the system provided that opportunity, society does not expect institutions with proud histories and millions of customers around the world to take advantage of it.
It is clear to me that, while the system lacked the right level of oversight, contributing banks also need to stand up and take responsibility for the quality of the submissions they make to the LIBOR process.

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