27 Jun 2012

Barclays pays massive fine for trying to fiddle bank rates

Barclays is to pay £290m in fines for attempting to manipulate inter-bank lending rates for its own gain as its chief executive agrees to give up his bonus.

Chief executive Bob Diamond apologised for the incident and said that, as a result, he and three other executives would not be taking a bonus this year.

Barclays will pay the fines to US and UK financial authorities for deliberately attempting to manipulate Libor, the standard interest rate at which banks lend to each other.

The US Commodity Futures Trading Commission (CFTC) said Barclays attempted to manipulate Libor submissions “sometimes on a daily basis”.

Barclays Bank, which was accused of engaging in the practice over a four-year period starting in 2005, was ordered to pay the CFTC $200m – the largest civil monetary penalty the CFTC has ever imposed.

Barclays’ misconduct was serious, widespread and extended over a number of years. Tracey McDermott, FSA

Barclays also settled with the US Department of Justice and the UK’s Financial Services Authority (FSA) and will pay fines of $160m and $92.8m respectively.

Mr Diamond said: “I am sorry that some people acted in a manner not consistent with our culture and values. The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business. Nothing is more important to me than having a strong culture at Barclays.”

Regulators have been investigating allegations that several banks, including Barclays, manipulated Libor – which stands for the London interbank lending rate.

Read more from Economics Editor Faisal Islam: Duuuude where’s Barclays’ bonus? Why ‘Lie-bor’ London should be afraid

What is Libor?

Libor is the average interest rate on loans between banks. It is estimated that around $360tr of financial products worldwide have rates based on Libor.

It underpins a key part of the derivatives market. Derivatives are effectively bets on the future movement of various indices, including interest rates.

Movements in Libor can potentially save banks millions of pounds and provide a barometer of the health of the financial markets. Traders in the derivatives markets could also make large sums of money by betting on the direction in which Libor would move.

Libor is calculated via a daily poll of banks in which they report at what rate they would be able to borrow money. The poll looks at 15 different currencies and ranges from overnight to 12-month loans.

The FSA said that during the financial crisis these Libor submissions were being reduced by the senior management at banks in order to counteract the negative sentiment within the financial markets.

In March, Barclays said it was engaged in a possible resolution with regulators looking into potential enforcement proceedings.

‘Serious and widespread’

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said: “Barclays’ misconduct was serious, widespread and extended over a number of years.

“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.”

Chris Leslie, Labour’s shadow financial secretary to the Treasury, said it was vital that a “fair and true” interest rate mechanism was in place to protect ordinary householders and their mortgage repayments.

He said: “It is right for Barclays to be fined this record amount and for their senior executive to forfeit their bonuses. But we now need to know how many employees were complicit in this process, how many will be losing their jobs as a result, and whether this needs to now go beyond the regulators and into a criminal investigation.”

As well as the FSA and CFTC, other authorities probing Libor manipulation include the European Commission and Japan’s Financial Services Authority.

Several banks have suspended traders over the investigations. No criminal charges have been filed.