Understanding the LIBOR scandal: The historical, the ethical, and the technological

Given the inadequacies in our present state of knowledge of banking regulation, we develop a theoretical model of banking regulation, which concerns three key areas: regulatory capture, speculative behaviour empowered by technology in banking, and financial system design that are derived from the overlapping between three clusters: structural nature, technological nature, and human nature. Through applying this model to the evidence from the 2012 LIBOR scandal and parallel financial scandals, we advance a theory of banking regulation: regulation should limit the speculative nature of human beings, recognize the capitalistic and interest-calculating nature of financial industry and the structural constraints on the existing financial system, and design incentive structures that engage key players to serve the policies and avoid being captured by the regulatees. Our study contributes to the decades-long debate on public view versus private view of banking regulation and is of interest to policy makers in the ongoing process of rewriting banking rules.