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Barclays

Barclays

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Published by: prince on Aug 06, 2012
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 Elizabeth Warren, a Democratic nominee for Senate in Massachusetts, has said that the Liborscandal calls the integrity of the entire financial system into question."The Libor scandal is more than just the latest financial deception to come to light. It exposes afraud that runs to the heart of our financial system," writes Warren, a long-time Wall Street criticwho is running for the U.S. Senate in Massachusetts."
Sixteen major banks,including Bank of America, JPMorgan Chase, and Citigroup, are underinvestigation for allegedly rigging the Libor, a benchmark interest rate that banks set and use tolend money to each other. It is the basis for hundreds of trillions of dollars' worth of loans andderivatives and its manipulation possibly cost some cities and states millions of dollars.  Warren writes that the rate-rigging offers further proof that the whole financial system lacksintegrity -- possibly the first time Warren and Goldman Sachs CEO Lloyd Blankfein have everpublicly agreed on anything. The journalist and outspoken Wall Street critic Matt Taibbi has also pointed out the far-reachingramifications of the Libor manipulation, telling the news show "Democracy Now!" that "[e]ven
the tiniest manipulation downward, when you’re talking about a thing of this scale, would result
in tens of trillions of dollars of losses."While Barclays has so far borne the brunt of public wrath over the Libor scandal, evidenceemerged this week that the American bank Citigroup may have in fact been the biggest interest-rate manipulator out of all the banks involved
Libor scam: Is Barclays too big to indict?
New York Times Jul 14, 2012, 02.19PM ISTLONDON: The question needs to be faced in the wake of the bank's admitted efforts tomanipulate the London Interbank Offered Rate, known as Libor, the benchmark for countlessinterest rate determinations and approximately $450 trillion in derivative contracts.If the JusticeDepartment was looking for a textbook case of white-collar financial crime - including aconspiracy that was flourishing at the height of the financial crisis - this would seem tailor-made.As the facts released by the government make clear, there were two separate but overlapping
 
schemes to manipulate Libor within Barclays. Yet the bank secured a nonprosecution agreementand agreed to pay a penalty of $160 million, a comparatively paltry sum for a bank that had morethan 32 billion euros ($50 billion) in revenue in 2011. "The perception so far has been that theregulators have been toothless," John C. Coffee Jr., professor of law and specialist in white collarcrime at Columbia Law School, told me this week.The first Barclays scheme, which flourished from 2005 to 2007, and continued sporadically as recently as 2009, involved Barclays traders who were trying to manipulate Libor and anotherbenchmark rates to enhance their trading profits. Libor is set each day by the British Bankers'Association based on rates submitted by a panel of banks that included Barclays. Thesubmissions are supposed to reflect the rates at which banks can borrow from other banks.Because of the huge amounts of derivative contracts riding on Libor, even a tiny shift can haveenormous consequences.Senior Barclays managers have said they knew nothing about this scheme, and Robert E.Diamond Jr., chief executive at the time, told Parliament last week that he was "physically sick"when he read the emails describing the activity. He added, "I think people who do things thatthey're not supposed to do should be dealt with harshly."The second scheme ran from approximately August 2007 to January 2009, aperiod covering thefall of  Lehman Brothers and the worst of the financial crisis. Senior Barclays managers instructed traders to submit falsely low rates to counter the perception that other banks werecharging high rates to lend to Barclays, a sign of financial weakness. Various emails and otherdocuments suggest that Barclays did this to protect its reputation, to avoid appearing to be an"outlier" among major banks and, according to one document quoted by the Justice Department,to keep Barclays' "head below the parapet" so it did not get "shot" off. (Barclays agreed not tocontest any of the statement of facts released by the government.)Barclays may also have submitted falsely low rates because it thought that's what regulatorswanted it to do. At the peak of the financial crisis, lower Libor rates helped reassure skittishinvestors that the financial system was sound. Barclays has released documents suggestingconcern at the Bank of England about its high Libor submissions as well as evidence that Barclays tried to alert regulators on both sides of the Atlantic about its suspicions that otherbanks were submitting falsely low Libor rates. But even if true, those may be mitigating factors,not defenses to a crime.In its news release, the Justice Department didn't say what crimes Barclays might havecommitted, referring only to "violations" and "misconduct." But it had multiple options. Acorporation is liable for any crimes committed by its employees acting within the scope of theiremployment. Making false Libor submissions is a fraud - both on Barclays' derivativescounterparties that lost money and on investors in Barclays stock who relied on its soothinglylow Libor rates as evidence of the company's health.
 
 
Another one bites the dust. The Royal Bank of Scotland is about to be fined $233 million (
£
150million pounds) for its role in the Libor-rigging scandal. It joins Barclays as the first banks to
 
walk the plank in what should be, but so far is not, the most sensational financial corruption storysince the crash of 2008.Many of the banks implicated in the Libor mess have also been targeted in the various municipalbond bid-rigging investigations, and RBS is no different
 – 
its subsidiary Natwest is also adefendant in the major civil lawsuit in the bid-rigging case. The cases aren't related, except in the
 
sense that they both involve manipulation and anticompetitive cooperation. It's going to beharder and harder to make the case that the major banks do not routinely cooperate at theexpense of the public when it serves their purposes to do so.The news that RBS is involved comes with a perverse twist. This is from the 
: The bank, which is 82 per cent owned by the taxpayer, is preparing for a political firestorm overthe affair because it believes that it has no power to claw back bonuses from the tradersresponsible. Instead, the expected fines would be borne by the shareholders
 — 
largely theGovernment.Libor manipulation is a crime that already robs the public to create bonuses for bankers. Byartificially lowering interest rates, the banks caused cities, towns, countries, and other publicentities to receive smaller returns on their variable-rate investment holdings. If it turns out thattaxpayers end up paying the fine for RBS's crime of robbing taxpayers, how perfect would thatbe?The
London Interbank Offered Rate
is the average interest rate estimated by leading banks inLondon that they would be charged if borrowing from other banks.
 It is usually abbreviated to
Libor
( 
/
b
)or
LIBOR
, or more officially to
BBA Libor
(for British Bankers' Association  Libor) or the trademark 
bbalibor
. It is the primary benchmark, along with the Euribor,for short term interest rates around the world.
 Libor rates are calculated for ten different currencies and 15 borrowing periods ranging fromovernight to one year and are published daily at 11:30 am (London time) byThomson Reuters.
 Many financial institutions, mortgage lenders and credit card agencies set their own rates relative toit. At least $350 trillion in derivatives and other financial products are tied to the Libor.
 In June of 2012, multiple criminal settlements byBarclays Bank  revealed significant fraud and collusion by member banks connected to the rate submissions, leading to the Libor scandal.
The Libor is widely used as a reference rate for many financial instruments in both financial marketsand commercial fields. There are three major classifications of interest rate fixings instruments,including standard interbank products, commercial field products, and hybrid products which oftenuse the Libor as their reference rate.
The rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting inter-bank offers in reasonablemarket size, just prior to 11.00 London time.
In 1986, the Libor initially fixed rates for threecurrencies. These were the U.S. dollar, British pound sterling and Japanese yen. In the yearsfollowing its introduction there were sixteen currencies. After a number of these currencies in 2000

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