“How do we put some of the banker blame game behind us?” Bob Diamond, head of Barclays bank asked his select committee last year; but after his bank has recently been found guilty of lying about interest rates for four years, he may be eating his words. The bank had lied up to as recently as 2009 about the interest rate it had to pay to borrow money, as a result of instruction from Barclay’s senior management.
Unsurprisingly, Mr Diamond has since apologised and agreed to lose his annual bonus as calls came for him to lose his job. Now other banks are under the spotlight for doing exactly the same thing.
Inside banks such as Barclays there are the ‘gambling’ side called ‘investment banking’ and the more mundane advisory and retail sides; between them is supposed to be a sacrosanct Chinese ‘wall’, but the rate setting scandal appears to have destroyed the very foundations of the wall. The repercussions of this could be huge; the interbank lending rates (which Barclays have conceded they tried to manipulate) are also used to set mortgage rates for millions of people around the world. The banks traders reached across the corridor to their colleagues who set these rates, and illegally persuaded them to push them up or down in the bank’s favour. The American watchdog CFTC said that Barclay’s top bosses (and not just lowly traders) were also involved in market manipulation.
At the heart of the scandal is LIBOR (London Interbank Offered Rate), this interest rate is agreed by a select number of key banks every day; despite its localised name it’s a global benchmark for contracts worth hundreds of trillions of pounds, so even the smallest deviations can cost or save a bank billions.
Other Banks Involved
Barclay’s would have paid a much bigger fine, but for the fact that other banks are being investigated Barclays were the first to claim ‘leniency’. It would seem their approach to this discovery and their team of criminal defence solicitors have managed to reduce the fine for the time being, but only time will tell if they will see further penalisation. This suggests that this is just the tip of the iceberg and there are plenty of banks including some very big British banks that are awaiting the wrath of the regulator and the judgement of the public. It has come to light that a handful of RBS (Royal Bank of Scotland) traders have been dismissed for their involvement in fixing interbank rates.
It’s extremely likely that thus latest scandal involving the banks will further damage an industry whose reputation already ranks below car clampers and tax inspectors.