Collusion in the setting of benchmark rates.

The aim of this project is to shed light on collusion in interbank rates. Interbank rates, such as LIBOR, made the news when it was discovered that they were manipulated. These rates are calculated as the trimmed average of panel banks’ submissions. Therefore, one bank only has a limited effect on the rate. It became apparent that banks had colluded (i.e. manipulated the rate together) and a record in cartel fines of nearly €2 billion was imposed by the European Commission. These revelations instigated an active academic debate on whether manipulation could have been detected from the data. However, as this young academic literature focuses mainly on manipulation by individual banks, collusion is underexplored. Moreover, there is no theoretical research on how a cartel could have worked in this industry, which is different from any classic cartel example. This project aims at bridging these gaps in the literature. In the first part, a theoretical framework will be introduced to give insights as to how collusion could work. The second part consists of an empirical analysis of the daily, individual panel banks' submissions and aims to design empirical screens that detect collusion. The project should provide insights for policy makers, regulators, and competition authorities. There is a growing acknowledgement of the importance of empirical screens in competition policy, as they are tools to detect suspicious behavior, while only placing a light burden on regulators’ resources.