Bad apples or sour pickles? Behavioral paradigms and social structure in the libor scandal

The aim of this case study is to investigate underlying causes for this evolution and to discuss effective countermeasures for the prevention of fraud. The LIBOR scandal broke out in 2012 and counts among the largest financial scandals in history, involving several organizations including regulators, authorities, banks and interdealer brokers. Investigations revealed that several banks colluded to manipulate the London Interbank Offered Rate (LIBOR) in order to boost profits from derivative products and/or to protect solvency from at least 2001 through 2010. The case study highlights the impact of economic incentives and organizational structure, i.e. rewards systems, social network ties and codes of conduct on the actions of organizations and individuals. At the same time, it touches on psychological factors at play when it comes to unethical behavior, i.e. reciprocity, power, conformity, recognition and morality.