- Between June 2007 and June 2008 – i.e. in the early days of the crisis, when banks still lent to each other – news that any bank had submitted rates higher than average, lit speculation that the bank was in trouble.
This speculation became self-fulfilling as banks stopped lending to any bank under a cloud of rumour and speculation. ....
In the heat of the crisis, it would be entirely reasonable for the Bank of England to consider that avoiding a speculative attack against one of Britain’s largest banks. Such an attack would have seriously threatened the viability of the UK’s financial system. As such safeguarding the financial system’s stability was a far greater priority than safeguarding the future integrity of Libor.
During financial crises, central bankers make these kinds of unenviable choices all day long – mortgaging the future in order to ensure there is one.
Nor, as Persaud points out was it a secret.
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