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- Mayank Shah, PGDM-FS, (60)
T he scandal surrounding Barclays PLC has already created turmoil in the British
banking giant’s executive suite – but it could reach much further before it’s resolved.
Barclays chairman Marcus Agius resigned on Monday, but then agreed to stay on as
the company searches for a replacement for CEO Bob Diamond, who abruptly resigned under
pressure the following day. Chief Operating Officer Jerry del Missier also stepped down.
Many more heads could roll if the rate-rigging scandal mushrooms, but even as it is, the
investigations into Barclays and other banks manipulation of a key interest rate called Libor
has wide-reaching implications for the financial sector – and for millions of businesses and
consumers in the U.S. and abroad. Here, a guide to the scandal and its potential fallout.
What Is Libor?
The London Interbank Offered Rate, or Libor, is a key short-term interest rate that reflects the
rates that banks get when they borrow from each other day-to-day. The interbank borrowing
is done by financial institutions looking to make profits or cover short-term liquidity
shortfalls. The British Bankers’ Association actually tracks a range of rates calculated daily
for 10 major currencies and 15 borrowing periods – from overnight to 12-month loans – so
150 numbers are published every day: the overnight euro rate, the two-week Yen rate, the 3-
month New Zealand dollar rate, the 12-month U.S. dollar rate, etc.
In announcing the settlement with Barclays, the authorities made a point of noting the bank’s
“extraordinary cooperation” with their investigation. In light of that cooperation, the Justice
Department agreed not to prosecute the bank if it meets its “ongoing obligations under the
agreement” for two years.
Barclays and its ex-CEO certainly believe they weren’t alone in fixing rates. “This isn’t just
Barclays,” Diamond said at his hearing before Parliament’s Treasury Select Committee.
“Throughout 2007 and 2008, no institution of the 16 banks reporting three-month dollar
Libor was at the higher end more consistently than Barclays." How far did the malfeasance
go? “There appear to be mountains of evidence that the conduct in question was intentional
and widespread, both within and among major banking institutions in the UK and likely the
U.S.,” Cumberland Advisors’ Lewitt wrote. In the U.S., big banks including Barclays, Bank
of America, Citigroup, Credit Suisse, Deutsche Bank, HSBC, Lloyds Banking Group,
JPMorgan Chase, Royal Bank of Scotland and UBS face lawsuits over the Libor rate-fixing.
Those suits could end up costing more than any penalties imposed by regulators.