Barclays Bank has been fined £290 million for attempting to manipulate key banking interest rates. Libor and Euribor (the London Interbank Offered Rate and the Euro Interbank Offered Rate), as the names imply, are the rates at which (leading) banks are willing to supply money to one another: it is the base value upon which further loans are granted are marked up upon. In essence, Libor and Euribor are the minimum costs at which money could be borrowed from a financial institution – as a borrower you hope to get a loan as close to the Libor or Euribor rates as possible. Interest rates are set on a daily basis by the British Banker’s Association (in the case of Libor) and remain in force for periods from one day to one year dependent on deal conditions. These rates influence the interest rates applied to trillions of dollars worth of financial transactions.
The suggestion is that staff involved in derivatives trading urged colleagues who dealt with setting Libor to alter the rate so as to favour their positions and increase bank profits. Libor is essentially a weighted average value for interest rates charged by the big banks on a daily basis, so it is possible that a single value can alter the rate and clearly open to bias were there to be a cartel at work. The Financial Services Authority (FSA) which levied the fine noted that between 2007 and 2009 when the financial crisis was at its worst, Barclays staff under reported the interest rate to foster the idea that the bank was not under financial stress and therefore having to borrow money at more costly rates than its competitors.
This is exactly the type of major financial scandal that the banking sector could do without at the moment and will only add fuel to the argument that the global financial crisis was triggered by a financial sector that had become a law unto itself in far too many aspects. Barclays admitted misconduct in a related American affair and paid $160 million in fines. By settling with FSA early, the bank was able to benefit from a 30% reduction in the fine imposed.