A Mechanism for LIBOR∗

The investigations into LIBOR have highlighted that it is subject to manipulation. We propose a mechanism that gets banks to reveal their borrowing costs truthfully at no cost to the administrator. The mechanism works even when borrowing does not occur. First, banks report the rates at which they can borrow. Second, a whistleblower bank may contest another bank’s report by revealing a transaction or stating a different rate at which the reporting bank could borrow. Third, the whistleblower’s claim and the initial reported rate are confirmed or denied by the willingness of other banks to lend at these