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No surprise: Barclays Libor fixing scandal

28/06/2012

FSA: Barclays ‘guilty of serious misconduct’ in Libor fixing scandal
Barclays’ misconduct was “serious, widespread and extended over a number of years”, says Tracey McDermott, director of enforcement at the FSA.

The Financial Services Authority said Barclays’ breaches of its requirements involved a significant number of employees and occurred over a number of years, after the bank was fined £290m for attempting to manipulate Libor, the world’s benchmark bank borrowing rate.

“Making submissions to try to benefit trading positions is wholly unacceptable.

“Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.”
»The Telegraph

Labour leader, Ed Milliband, said those who broke the law at Barclays should face criminal prosecution.

He told Unite: “This cannot be about a slap on the wrist. When ordinary people break the law, they face charges, prosecution and punishment. The same should happen here. The public who are paying the price for bankers’ irresponsibility will expect nothing less.”

Mayor of London Boris Johnson said the attempted manipulation was “very, very dodgy practice indeed” and urged all banks to “come clean”. He added: “I think that if there has been criminal activities then clearly people need to pay the price.”

Lord Oakeshott, a former Liberal Democrat Treasury spokesman, described the bank as “a casino that was rigging the wheels and loading the dice”.

“If Bob Diamond had a scintilla of shame, he would resign,” he said. “If Barclays’ board had an inch of backbone between them they would sack him.”

Martin Taylor, the former chief executive of Barclays, told BBC Radio 4’s Today programme that the board of Barclays was facing questions about how it restores the reputation of the business. “There’s not much to a bank except its licence, computer systems and reputation,” he said. If a bank has a “policy of systematic dishonesty” he added, then it has “some rebuilding to do.”

Libor – the London Interbank Offered Rate – is the rate is used to fix the cost of borrowing on mortgages, loans and derivatives worth more than $450 trillion (£288 trillion) globally. The FSA fined Barclays a record £60m, saying staff at the bank had repeatedly made false submissions to help set Libor.

Emails uncovered as part of a three-year investigation into claims that Barclays and other banks attempted to inflate and suppress Libor show the extent of the scandal.

Lord Myners, former City minister, told the BBC’s Newsnight that any Barclays staff responsible for manipulating the Libor rate should face the prospect of going to prison.

“This is the most corrosive failure of moral behaviour I have seen in a major UK financial institution in my career,” he said.

“I think fines and public criticism will not stop these behaviours. These behaviours will not stop until the people perpetrating it or responsible for overseeing them face the prospect of criminal charges and the prospect of going to jail.”
»Cameron says Barclays has ‘serious questions to answer’ amid calls for chief executive Bob Diamond to resign

Mr Tyrie, Treasury Select Committee chairman, said “healthy banks” were necessary to attract business to the UK but that he suspected that other financial institutions were involved in Libor fixing and that the Barclays fine was “not the end of the story”.
»Libor fixing: bank regulators were ‘asleep on the job’, says Andrew Tyrie

Mortgage holders, credit card users and small businesses may have been charged too much for their loans after one of Britain’s biggest banks admitted systematically rigging financial markets.

Barclays was fined a record £290 million for repeatedly distorting basic financial data which are used to set interest rates on millions of loans and other transactions around the world.

The scandal relates to the London Interbank Offered Rate (Libor), the interest rate that banks pay on money they borrow from one another.

The Libor rate is one of the basic pieces of information on which trillions of pounds of financial transactions are based. It helps determine the interest rate that is applied to loans, including some mortgages, credit cards and business loans.

Libor is calculated on information about rates supplied by 15 of the world’s biggest banks, which are under strict obligations to provide accurate figures.

British and American regulators yesterday concluded that, between 2005 and 2009, Barclays traders and managers repeatedly made “false reports” in order to push Libor and other interest rate measures higher or lower than its true rate. The manipulations helped increase traders’ profits and protected Barclays’ reputation. They also raise the prospect of consumers and businesses paying the wrong rate of interest.

Market rules dictate that bank staff who report interest rates for calculating Libor are supposed to be isolated from traders who have a financial interest in the rates.

Emails sent by Barclays traders to staff submitting Libor data showed their demands for artificially high rates. “I was hoping we could set the 1-month and 3-month Libors as high as possible,” wrote one trader in 2006.

Another, sent later that year, told a data-submitter to “go crazy with raising 3-month Libor”. Replies showed that Barclays rate-submitters readily complied. “Done…for you big boy,” wrote one.

An external trader emailed a Barclays trader to state: “If it [Libor] comes in unchanged I’m a dead man”. The Barclays trader said he would “have a chat” and the submission was later lowered.

The external trader thanked the Barclays trader and added: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.”

From 2005 until the summer of 2007, Barclays’ attempted manipulation was driven by traders trying to increase profits on their own deals using complex financial instruments. But when the credit crunch began in August 2007, regulators found, the bank’s senior management began to direct the false reporting activities.

During the first years of the crisis, Barclays frequently paid higher interest rates than other banks due to concerns about its financial position. Regulators found that in order to protect Barclays’ reputation, the bank’s senior management instructed staff to make artificially low Libor submissions “routinely”.
»Interest rate was rigged by Barclays

Comment:
The government passed a law that prevents it from prosecuting financial institutions.

AND

The regulators don’t like to banish bankers in case they need a nice job with big fat salary, bonuses and pension one day.

Is it little wonder that the bankers carry on regardless?

“It is hard to imagine a more stupid or more dangerous
way of making decisions than by putting those decisions in the hands of
people who pay no price for being wrong.”
Thomas Sowell

ExasperatedMe

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