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Beyond Barclays: Laying out the Libor Investigations

Charting the revelations about big banks’ manipulation of international interest rates.

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(Getty Images)

Last week, the British bank Barclays was slapped with $450 million in fines and penalties for manipulating information used to set a critical interest rate.

Settlements filed by government regulators in the U.S. and the U.K. show this manipulation happened in two ways: first, Barclays’ traders attempted to steer rates up or down in order to benefit trades they had made to profit off of those rates. Separately, the filings show that during the financial crisis, Barclays tried to counter reports that it had financial troubles by changing the interest rate it reported.

If you’re just catching up to this, here’s some background on the scandal, and how we’ll likely see government action on other banks besides Barclays.

What are these interest rates? How could one bank manipulate them?

The Libor, or London Inter Bank Offered Rate, is a short-term interest rate that’s meant to reflect the cost of borrowing between banks. A panel of banks submits estimates daily to a trade group, the British Bankers’ Association. Thomson Reuters compiles an average rate for them, discarding any very high or low submissions. That rate is used to set rates for an estimated $360 trillion worth of financial products, all the way down to consumer loans and mortgages. (An analogous process sets the Euribor, for Eurozone banks. For help cutting through all the jargon, see this helpful explainer from American Public Media.)

And why did Barclays traders want to mess with them?

Emails quoted by government regulators show Barclays traders asking employees in charge of submitting estimates for Libor and Euribor to go low or high on a given day (sample: “No probs…low it is today” and “Come over one day after work and I’m opening a bottle of Bollinger! Thanks for the libor.”) Some of the attempts involved former Barclays traders at other banks.

The traders wanted to influence the rates in order to profit on positions they had taken in particular trades and to benefit Barclays’ derivatives portfolio as a whole. Emails and other records show that this occurred frequently from 2005 to 2007 and occasionally until 2009. It’s not clear when, and by how much, the traders’ requests actually affected the rates, though the U.S. Justice Department says they sometimes did.

Robert Diamond, Barclays’ CEO, has called these actions “reprehensible” and the bank maintained in a statement prepared for a British parliamentary committee that no one “above desk supervisor level” knew about it at the time. The government’s complaints fault Barclays for not setting controls on how the Libor was submitted.

Barclays’ other Libor problem

Much attention’s been paid to the scheming traders and their emoticon-filled emails but regulators’ complaints also focus on another aspect of Libor manipulation: How Barclays tried to shore up market confidence in the bank’s stability during the financial crisis.

As the filings detail, in 2007, Barclays started submitting higher estimates for the Libor, saying they reflected rocky market conditions. But relative to other banks, which were still submitting low rates, Barclays looked risky. The bank maintains it was hamstrung because other banks were going artificially low. “A number of banks were posting rates that were significantly below ours that we didn’t think were correct,” Diamond told a committee of British lawmakers Wednesday.

According to regulators, Barclays management issued a directive that Barclays should not be an “outlier,” and that submitters should lower their estimates to bring Barclays “within the pack.”

In October 2008, with the financial crisis at full bore, Barclays was again on the higher end of rate submissions. That month, according to filings, a senior Barclays manager spoke with a Bank of England official about Libor rates, and the idea that they might be artificially low. Hearing of this conversation, other Barclays managers “formed the understanding” that the Bank of England wanted Barclays to lower its submissions.

This week, Barclays released an email confirming the conversation was between Diamond and Bank of England’s deputy governor Paul Tucker. It was another Barclays manager, Jerry del Missier, who determined what he thought Tucker’s comments meant, Barclays says.

On Wednesday, Diamond maintained he did not know about the artificial rate-lowering until the settlement documents were released last month.

The Barclays fallout so far

Barclays settled for approximately $450 million, of which $160 million goes to the U.S. Justice Department, $200 million to the Commodity Futures Trading Commission, and the rest to the U.K.’s Financial Services Authority. Barclays’ chairman resigned Monday, shortly followed by Diamond and del Missier. As part of the agreement with the Justice Department, Barclays admitted to a set of facts, which may help private lawsuits over Libor manipulation, as this New York Times legal explainer lays out. (Here’s the Justice Department’s “statement of facts,” as well as orders of settlement from the CFTC and the FSA).

The Serious Fraud Office in Britain is considering a criminal investigation and the Justice Department could also potentially bring charges against individuals at the bank.

A problem bigger than Barclays

The Barclays penalty is the first to result from a multi-agency investigation into Libor meddling at more than a dozen banks that reaches back to 2007.

The investigation’s next steps hinge on a few questions: Which other banks were traders at Barclays communicating with when they attempted to steer rates? Was similar behavior happening at other banks? And were other banks artificially suppressing rates during the financial crisis?

In his testimony, Diamond stuck by the line that everybody was doing it. And indeed, the revelation that banks might have tried to keep their rates artificially low during the crisis isn’t altogether new—in 2008, the Wall Street Journal reported that banks were submitting much lower rate estimates than other market measures would have suggested. In 2008, the British Bankers’ Association said it had received suggestions that banks were exhibiting “herd” behavior in setting low rates.

The Washington Post notes that a manipulated Libor doesn’t just have repercussions for investors and borrowers, but also for regulatory efforts; by keeping rates low during the financial crisis, the banks were trying to quell concerns about the health of the banking system and “stave off calls for additional regulation.”

So who else is being investigated?

Revelations about other banks have been trickling out over the past year:

· UBS previously made agreements to cooperate with several international investigations in exchange for leniency on potential criminal charges.

· Citigroup was also a target of investigation. Earlier this year, it emerged that a few traders at Citigroup and UBS tried to manipulate Libor rates for the Yen.

· The Times of London reported that Royal Bank of Scotland could soon be hit with a fine of up to $150 million for related charges.

· Bank of America also reportedly received a subpoena last year from regulators as part of the investigation. JPMorgan Chase, Credit Suisse, HSBC and others were also on the Libor-setting panel during the period being investigated.

· Last fall, European regulators seized documents from Deutsche Bank and others regarding manipulation of the Euribor.

Private lawsuits over Libor are already underway. Last summer, Charles Schwab filed a suit alleging anti-trust violations against many Libor-setting banks and at least one class action has been filed alleging that Libor manipulation meant banks paid “unduly low interest rates to investors.”

why not exempt the banking industry from all rules, regulations and laws so that Fraud is institutionalized as the recognized standard with government statutory approval rather than merely defacto -  going along to get along - with minor fines - each time they steal people blind

that way diamond / dimon/ blankfein et al - dont have the inconvenience of pretending any more the industry is a legitimate enterprise.

BaFin, the German regulator, is conducting a “special investigation” into Deutsche Bank, according to Reuters: http://www.reuters.com/article/2012/07/06/us-deutschebank-libor-idUSBRE8650OH20120706

+1 for David’s recommendation.

Barbara Mahon

July 6, 2012, 3:54 p.m.

The manipulation and corruption by banks everwwhere, Wall Street and other investment cos., the megacorporation rule, is appalling and frightening.  And people believe they must revolt against government.  Go to the source..  Gov’t is manipulated by the big money.
When will moral law surpass huge profits?  May compassion, vigilance and human ethics prevail in the face of the GREED of the 1%.  We need an overhaul of an existing entrenched system that benefits the few who have no awareness of the needs of the many.  Exploitation at its worst.  Their illusion of generosity with their myriad grant foundations further the process.  Parity of resources, worldwide is the aspiration.

I really hope these investigations are legit and the banks are beginning the journey to jail.  I am sure the Europeans are not too happy with the fact that the banks pumped up housing prices by selling junk as AAA, only to short everything with swaps when the banks purposely-burst the bubble the created.  The Europeans, like Americans, have been left holding the bag with worthless investments and property values in the toilet while society has been enslaved by mortgage debt and record government deficits and debt.  I hope they go after the banks like our Justice Dept, under two administrations, has failed to do.

We are all effected by this dastardly deed!  Every one of the bond bums touching this setting number needs to be hauled before a magistrate, stripped of assets and jailed for the next 30 years. Ditto for the management of the Bank of Englands board. This is becoming exhausting to all of us.

+1 for ClaudeM’s comment

And they sent Martha Stewart to prison for her HUGE financial gain!  She must have pissed off the wrong people.

It IS exhausting to read day after day of how big biz/banks committed fraud all over the world.  If corporations are now people, according to our Supreme Court, why are they not prosecuted like people?  You or I would be serving long sentences and making financial restitution for the rest of our lives.

Regulate.  The world economy has been wrecked by two decades of deregulation, and of the Reagan/Thatcher ideas that the free market will always be right.

We must move beyond this ridiculous idea that government and control are bad, and free market/private enterprise are inherently good.  There is a decent middle ground where people can make money without destroying millions of innocent lives.  There is a place where people can be paid adequately for a fair day’s work.  There is a world where we don’t have “working poor”.  But not while governments are controlled by the 1%.

Libor is like gravity. It affects all worldwide. The tiniest change adds up to many pounds.

sheeple have no choices….............no matter what the subject

KEPCO concealed from the government some of its studies on faults near the Oi power plant. Scientists were ignored though they argued that a fault ran between reactor 1 and 2, and that it and two other nearby faults could be connected during an earthquake and produce far greater shaking than the government had estimated in its stress tests, raising the risk of another major nuclear disaster. And they claimed that the Nuclear and Industrial Safety Agency (NISA) hadn’t properly investigated the fault lines. Under pressure, NISA called for more studies on the faults near Oi and other power plants. But that was it.

>>>>>The accident<<< “was a profoundly manmade disaster - that could and should have been foreseen and prevented,” wrote Chairman Kiyoshi Kurokawa (88-page summary of the 641-page report). The report found a “multitude of errors and willful negligence” that left the power plant unprepared for the earthquake and tsunami.

>>>>It blamed <<<<<the “ingrained conventions of Japanese (aka:American) culture,” such as “our reflexive obedience, our reluctance to question authority, our devotion to ‘sticking with the program’, our groupism, and our insularity.” The report laments that “nuclear power became an unstoppable force, immune to scrutiny by civil society,” where regulators and promoters were one and the same.

A “tightly knit elite with >>>enormous financial resources” <<< and “the collective mindset of Japanese bureaucracy” conspired “to resist regulatory pressure and cover up small-scale accidents.” A mindset that led to the “disaster made in Japan.” In 2006, for example, the government updated its standards for earthquake resistance, but when TEPCO refused to bring its power plant into compliance with seismic upgrades, NISA did nothing….........

and so it goes from Japan Inc. to New York / London Banksters

George HofFman

July 6, 2012, 11:11 p.m.

Considering all the misery cause to average working class and middle class families by the financial meltdown in 2008 both here and abroad, this latest banking scandal at Barclays is quite a serious and disturbing revelation.
There needs to be more regulation of bank. Hopefully, if President Obama does win a second term, he will finally take off the gloves and get medieval on their arses.

Matt Taibbi and Eliot Spitzer discuss the ramifications and scope of this scandal of scandals that involves probably 16 banks. Diamond’s released emails indicate that the British Govt. were leaning on Barclays to fudge the interest numbers.

http://www.rollingstone.com/politics/blogs/taibblog/libor-banking-scandal-deepens-barclays-releases-damning-email-implicates-british-government-20120704

Check it out the interview.

http://youtu.be/qZWDemn_njg

A new set of Laws tergetting only greed-blind super wealthy guys behind corporate-profiteerings, replacing the old version model book of laws will do the magic of positive change in the global economy.
To understand how it is possible, visiting http://WWW.shahislam.com may help a little.

Nevada George

July 7, 2012, 11:05 a.m.

Who is the Wizard behind the Screen?
Where do the footprints lead?
You have to look from outside of the glass
to see how the “Ant Farm” is Hierarchically structured.
Maybe we “all” are Muppet’s…some just higher up the food chain
than others.

I am now absolutely convinced that the idea of giving most of the money to the rich with the hope that they will take care of the rest of us has some very serious flaws.

As conservatives (especially) are fond of saying, “Absolute power corrupts absolutely.”  Well, the bigger the bank and the more power it has…there’s your example.  Now, are “free-market” cheerleaders willing to draw the obvious conclusion?  It’s not Big Government that did this, it’s Big Capital.

It is big capital, however my fellow conservatives point out that the government set up that system.  Of course, the govt only does what it is lobbied to do…by industry.

It is disheartening as well as frightening to watch as the global economy is sinking into a system that rewards corruption and criminal activity to the so-called “money” class in which their activities are nothing less than the financial murder of average hard-working people. Perhaps somewhat extreme, the authorities (if they can be trusted) should conduct thorough and full investigations in order to identify the perpetrators and then impose swift justice…just shoot them!

Licensing.
If a bank is found guilty of serious fraud, revoke all licensing for trading. Force a sell off. The SEC in the US has powers to enact claw-back on earnings of fraudsters, I am sure other regulators do. Jail all persons implicated where evidence is sound.
Then - just maybe - cowboy banksters might think twice before robbing the trains. That is after all of their friends lose their jobs and the fraudsters are thrown in jail with all of their assets seized.

This sort of finger-slapping is ridiculous, and it leaves Government with shmuck all over their faces. Diamond and del Missier should be in jail right now! That is the definition of holding a position with responsibility. “The government’s complaints fault Barclays for not setting controls on how the Libor was submitted.”

Come on people, do your jobs!!

Time to legalize fraud so the 99% can get some

Citizen United

July 8, 2012, 2:58 a.m.

At what point does the Department of Justice and the FBI actually punish criminal conspiracies, such JP Morgan Chase and News Corp?

JP Morgan Chase:
- Municipal Bond Market Rate manipulation
- Energy Market Rate manipulation
- Libor Market Rate manipulation

New Corp:
- Phone Hacking
- Computor Hacking
- Corporate Espionage
- Theaft of Intellectual Property
- Corporate Competitive sabotage
- Bribing Public Officials

I am certainly not an expert, but, it doesn’t take a rocket scientist to comnnect the dots.

This fraud was known way back in 2008 yet the republican Justice Department did nothing.

The whole of the British institution is a criminal cartel. The banks are only one wing of it. There is corruption in the courts and the legal mafia is running the country with racketeering involving corrupt police officers and the government turns a blind eye because there is involvement of officials. Social services steals children for profit and pays crooked experts to write reports and judges to issue injunctions to silence the media.  There is more…...

This politico-bankster era sucks. Decades of bailouts and meddling has created a massive zombie industry. How can you trust politicians and the currencies they manage, or bankers and the businesses they manage - http://therealasset.co.uk/libor-austrian-gold/. Crony capitalism at its finest and I’m sick of it!

That people have become this brazen probably means they’re near their collective ends.  They either believe that they’re too powerful to get caught or that they’ll be dead before they’re caught.

Either way, I think it’s time to get involved.

It’s time to back away from private institutions that are doing damage, to the extent that you can.  Every dollar you put somewhere else is a dollar the big banks can’t use, for example.  Every dollar you spend locally helps your community.

It’s also time to start lobbying.  Our representatives are being misled by big companies, and if you see through it, you should be helping them, respectfully offering your help (and encouraging anybody who agrees with you to do the same) so that your voice can compete with the professional lobbyists.

Politeness counts.  If someone calls you a jerk and an enemy, are you going to listen to them?  Don’t expect a Senator to be any more receptive to fire and brimstone.  Personalization counts, too.  It’s easier to delete an e-mail than hang up the phone, throw out a hand-written letter, or escort someone out of your office.  And preening counts.  Make it clear who you are and who you know, because there’s political value in standing with a leader in a community (teacher, regular church-goer, even retail clerk or book club member) more than some know-it-all who writes e-mail from his mom’s basement.

If enough of us start taking a stand, showing that we’re interested and invested in our own futures, we can start cultivating the people in government who still care.  But right now, we stand aside and ignore them under the assumption that they’re all corrupt.  But while we back away, the bad guys aren’t doing any such thing, so all even the most honest politician hears is how anarchy will bring jobs into the country and how the economy will recover if the peasants would only just eat cake instead of whining about bread prices.

(No, Marie Antoinette didn’t originate the thought—it predates her in satirical writings by a generation or two—but the connection to fast food prices versus fresh vegetable prices shouldn’t be lost on anybody.)

What individuals in the US seem not to understand is that your very own community could have been gamed.  If your municipality was to purchase Muni-bonds, then where did they go for interest rates?  LIBOR
  If these loans were based on low-ball number’s then wasn’t the amount recovered as ROI falsely low?
  As a result, lower dollars in municipality, budget shortfalls, etc.  Did your municipality cut services due to budget shortfalls?

Like Abramoff said about lobbyists’ activities: 1st nobody really wants to change things and 2nd they’re smarter than the regulators anyhow.

Think ENRON manipulating the power grid. It’s just creative spread-sheeting ... sorta like a sci-fi fantasy game but with real winnings.

Show me a psychopath and I’ll show you someone who’s got what it takes to succeed in a corporate environment. (No, not just kidding.)

/bdt

Kenneth Johnson

July 14, 2012, 1:09 a.m.

These people have broken the law, why aren’t they in jail?
If all that happens to them is a fine, and their company pays that. What
does that teach our kids? That You can get caught breaking the law, if you are a big shot at a bank. or financial officer, you Just pay a fine, and still get Paid millions of dollars a year. Some crime pays, big time!

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