LIBOR calculations and social networks

July 3, 2012

The unfolding of the LIBOR scandal reminded us again how deeply embedded this calculated figure is in a City social network. Donald MacKenzie wrote about this for the London Review of Books four years ago and the opening paragraphs of that piece are priceless. You can easily imagine how norms of reciprocity develop in such environment:

The process of calculating LIBOR yields no immediate clues as to how vital it is. 

Its central co-ordination requires only two people, who work in an unremarkable open plan office in London’s Docklands, and seemed utterly routine when I watched them at work a couple of years ago.  Just after 11.00 am every weekday that’s not a bank holiday, traders at leading banks send in electronically their estimates of the interest rates at which their banks could borrow money.  Sometimes the co-ordinators make a reminder phone call to a bank that has not sent in its estimates, and if the latter seem implausible – typos, for example, are fairly common – they’re checked, also with a quick call: ‘Hi there, is the Kiwi chap [provider of the estimates for borrowing New Zealand dollars] about? … Bit of a spread on the two month.  Everyone else is coming in a good bit under that.’


A simple computer program discards the lowest quarter and highest quarter of the

estimates, and calculates the average of the remainder.  The result is that day’s LIBOR.  The calculation is repeated for each of ten currencies and fifteen loan durations (from overnight to twelve months), so 150 LIBORs are published daily: overnight sterling LIBOR, one-week euro LIBOR, one-month yen LIBOR, three-month US dollar LIBOR, and so on.


2 Responses to “LIBOR calculations and social networks”

  1. Home Says:

    MacKenzie is worth reading, broad-minded person.

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