Barclays LIBOR Scandal

by Mark Johnston

The latest banking scandal looks to threaten the integrity and public perception of the entire financial system.

In order to protect themselves in the height of the financial crisis, Barclays recently admitted that they had conscious decision to falsify LIBOR rates.

LIBOR is the London Interbank Lending Rate and this is considered to be one of the most crucial interest rates in finance as it underpins trillions of pounds worth of loans and financial contracts.

Pushing the LIBOR up could make mortgages more expensive and manipulating it down would mean lower interest rates.

The LIBOR rate is therefore important to everyone; experts have estimated that there are 250,000 mortgages which are directly linked to it, meaning the mortgage rate moves up and down with it.

Ray Boulger, of mortgage broker John Charcol, said “any impact on mortgages will have been beneficial because any impact on the LIBOR rate will have been to set it lower than it should have been”.

As early as 2005 there was evidence that Barclays had tried to manipulate dollar LIBOR and EUIBOR, which is the euro equivalent of LIBOR rates.

According to a report by the Financial Service Authority (FSA), between 2005 and 2009 Barclays derivatives traders made a total of 257 requests to fix LIBOR and EUIBOR rates.

The bank was fined £290 million last week after they were found to have attempted to rig the key rate. They also now face a possible £4.5 billion bill from the scandal that has ripped the bank apart.

The Bank of England has also now been dragged in to the rate fixing scandal. In the wake of the resignation of Barclays chief executive Bob Diamond a damning memo was released suggesting that the central bank also wanted inter bank lending rates reduced artificially.

The Prime Minister, David Cameron, has announced a full parliamentary inquiry in to the banking sector.

The Serious Fraud Office (SFO) are also now considering whether to bring criminal charges against the bank who tried to manipulate the inter bank lending rate.

The public’s already fragile confidence in the bank has now been shattered, this has also lead to the entire banking industry’s reputation been at risk.

It seems then that now is the time for the bank to re-examine what sort of organisation it wants to be in the future, although it will be quite sometime before consumers confidence returns.

According to John Huntley, a crisis management consultant, Barclay’s reputation hangs on how far the government is willing to investigate the scandal.

Industry insiders believe that Barclays is unlikely to be the only bank found to have manipulated LIBOR. A total of 12 banks have now disclosed that they too are being investigated over LIBOR rigging, these include state backed banks Lloyds banking group and Royal Bank ofScotland. These however are believed to be just the tip of the iceberg.

The British Banker’s Association (BBA) is investigating how it can change the way that the LIBOR rate is set.

Story link - Barclays LIBOR Scandal

Related stories to : Barclays LIBOR Scandal