More banks face interest rate rigging investigation

Tracey McDermott, of the FSA, says the misconduct is some of the most serious the regulator has ever seen

Related Stories

A number of banks are being investigated and could face sanctions after Barclays was fined £290m ($450m) for trying to manipulate interest rates at which banks lend to each other.

Regulators in Europe, the US and Asia have said that investigations into other banks are "ongoing".

The UK's Financial Services Authority said the early signs were that Barclays had not been the only firm involved.

Barclays has said its actions "fell well short of standards".

Its traders lied to make the bank look more secure during the financial crisis and, sometimes - working with traders at other banks - to make a profit.

Chief executive Bob Diamond and three other top executives at the bank are to give up their bonuses this year.

Mortgage deals

Tracey McDermott, director of enforcement at the FSA, which imposed fines alongside the US financial regulator, told the BBC: "We have a number of investigations that are ongoing.

"Obviously we need to look at each case on its own particular facts but the initial indications are that Barclays was not the only firm that was involved in this."

The US Department of Justice also said criminal investigations into "other financial institutions and individuals" was ongoing.

Other big names believed to be under investigation include Citigroup, JP Morgan, Deutsche Bank, HSBC and Royal Bank of Scotland.

Barclays has admitted that a group of traders lied about what it was costing the bank to borrow.

Now, why does this matter?

It matters because lots and lots of deals involving clients of Barclays used the interest rate into which Barclays was feeding this information, about its own borrowing costs, to determine the profit and loss on their own deals.

It's quite hard to think of behaviour by a bank as shocking as this: not telling the truth about what it is costing you to borrow, that then becomes a benchmark for pricing other deals.

The statement from the US regulator, which levied a big chunk of the fine, talks about how Barclays was working with other banks to try to fix this interest rate.

This of course implies that Barclays is simply the first bank to settle and we will see fines and punishments against some of the other big banks of the world.

Barclays' misconduct relates to the daily setting of the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor).

These are two of the most important interest rates in the global financial markets and directly influence the value of trillions of dollars of financial deals between banks and other institutions.

They can also affect lending rates to the public, for instance with some mortgage deals.

It is not yet clear whether Barclays staff actually succeeded in manipulating the interest rates to the bank's advantage and therefore whether it had any impact on borrowers.

While the FSA said only that the Barclays employees had attempted to do so, the US Department of Justice said that on some occasions they did affect the Libor and Euribor rates.

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

He said the behaviour of Barclays staff was the worst he had seen.

"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."

Andrew Tyrie, chairman of the Commons treasury committee, said it would summon Mr Diamond to account for what had happened.

"Banks were clearly acting in concert. I fear it's not going to be the end of the story, that we are going to find that other banks have been involved," he said.

'Accepted culture'

The fine imposed on Barclays is part of an international investigation into the setting of interbank rates between 2005 and 2009.

Each day the British Bankers' Association (BBA) and the European Banking Association publish the Libor and Euribor rates by taking an average of the estimated rates submitted to them by leading banks.

Start Quote

I owe you big time... I'm opening a bottle of Bollinger”

End Quote Exchange involving Barclays staff

Between 2005 and 2008, the Barclays staff who submitted estimates of their own interbank lending rates were frequently lobbied by its derivatives traders to put in figures which would benefit their trading positions, in order to produce a profit for the bank.

And between 2007 and 2009, during the height of the banking crisis, the staff put in artificially low figures, to avoid the suspicion that Barclays was under financial stress and thus having to borrow at noticeably higher rates than its competitors.

The FSA pointed out that Barclays traders were quite open about their routine attempts to lobby their colleagues who submitted the bank's estimate of its borrowing costs to the BBA.

It was particularly concerned because it appeared to be "accepted culture" among some staff.

"Requests to Barclays' submitters were made verbally and a large amount of email and instant message evidence consisting of derivatives traders' requests also exists," the FSA said.

In one instance, a trader recounted a conversation in which he had "begged" the submitter to put in a lower Libor figure.

"I'm like, dude, you're killing us," he said. His manager replied, "just tell him to... put it low".

In turn, the staff submitting the data would respond to the traders' requests.

"For you…anything," said one. "Done… for you big boy," said another.

And: "I owe you big time... I'm opening a bottle of Bollinger."

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Features

  • Shinji Mikamo's father's watchTime peace

    The story of the watch that survived Hiroshima


  • Northern League supporters at the party's annual meeting in 2011Padania?

    Eight places in Europe that also want independence


  • Elephant Diaries - BBCGoing wild

    Wildlife film-makers reveal the tricks of the trade


  • Hamas rally in the West Bank village of Yatta, 2006Hamas hopes

    Why the Palestinian group won't back down yet


  • A woman dining aloneTable for one

    The restaurants that love solo diners


BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.