Modelling the lowballing of the LIBOR fixing

We test the lowballing of submissions to the three-month US dollar LIBOR fixing by panel members using a simple two-equation model. We find evidence in the quote behaviour of a handful of banks during a period of extreme stress in interbank markets that the submission of high quotes is associated with stock price declines and that stock price declines encourage the submission of low quotes the following day. Two of these banks - Barclays and UBS - have admitted to regulators that they had engaged in lowballing US dollar LIBOR submissions during the financial crisis. However, when allied to the filtering process applied to LIBOR fixings, the absence of widespread lowballing among panel banks suggests that any such lowballing did not impart significant downward bias to three-month US dollar LIBOR.