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29th June 2012

Barclays persistent and organised Libor manipulation
Opinion

It was not news that various banks are under investigation for Libor. New to many with regard to the Barclays Bank settlement was the long term, systematic, and organised nature of it manipulation. There are specific references to manipulation occurring on the orders of senior management to make the bank appear stronger, improve profitability, and to attempt to dispel rumours that it could not borrow as cheaply as rivals. Various traders have been suspended or have left the banks but, as far as we know, none of the senior management involved have been named or charged to date.


A further complication for Barclays is that Bob Diamond, current group chief executive, was head of the investment bank at the time of the manipulation. Radio & TV headlined the news on Thursday with calls for Diamond's resignation on Wednesday night and Thursday in the UK. His offer to forego his bonus did nothing to reduce the calls.


The impact on banking ethics across the western world are set to increase. Not discussed widely yet is the fact that Barclays working in isolation would not successfully affect Libor rate if it submitted rates significantly different to the rest. This is because the Libor calculation first excludes the highest and lowest rate from those submitted by the group of banks and only then averages the remainder. Lloyds Banking and RBS in the UK are also under investigation as are Citigroup, Deutsche and UBS banks. It is not known whether their manipulation has been proven and was as systematic as with Barclays. Against the reputational damage caused by systemic long term fraud the fine of $450m imposed on Barclays is almost irrelevant. Perhaps less irrelevant to all banks found guilty of manipulation will be class action suits in American courts that are certain to follow. According to estimates delivered with the findings Libor sets the rates for around $10tr of loans and approaching $1,000tr of derivatives of various types. Any deal with the authorities by the banks cannot protect them from such civil actions. Litigants do face one problem however. The regulators have proved that requests were made to those submitting Libor data to make the information low or high and that the submitters responded by agreeing to do so. This is not the same as proving that the information they submitted was different to what they would have otherwise done. Certain data included in the regulatory report does give strong circumstantial evidence, to say the least, of such data manipulation however.

The FSA report can be accessed at:
http://www.fsa.gov.uk/static/pubs/final/barclays-jun12.pdf