Libor Understated by Banks During Financial Crisis, Causing Market Risk.
The study compared Libor to other measures of bank borrowing costs during the financial crisis. Libor generally followed these alternative measures, but was lower by 20-30 basis points at the peak of the crisis, suggesting banks were downplaying their borrowing costs due to stigma. There was a wide range of bank borrowing costs not captured by Libor, showing the risk of using market-wide funding costs in contracts during financial turmoil.