United kingdom Daily news: Barclays did not act despite THREE warnings over Libor

Barclays did not act despite THREE warnings over Libor

By This Is Money Reporter

PUBLISHED: 07:27 EST, 30 June 2012 | UPDATED: 07:55 EST, 30 June 2012

An urgent independent review has been called for next week to look at the future operation of the Libor rate and the possibility of introducing criminal sanctions, a Treasury source said.

The news comes as it transpires Barclays' failed to act on three internal warnings about 'patently false' information given by its staff to those who set the key Libor interest rate.

MPs have now called Barclays chief executive Bob Diamond to appear in front of the Treasury Select Committee on Wednesday.

According to the Financial Services Authority, the investment bank's compliance department failed to act on an email from an employee who said he was 'increasingly uncomfortable' with the bank's 'patently false' submissions to rate-setters.

Under fire: Bob Diamond will appear in front of the Treasury Select Committee on Wednesday

The missed warnings - between 2007 and 2008 - became apparent as the furore around banking practices hit new heights, with Business Secretary Vince Cable calling the system a 'massive cesspit' which needed cleaning up.

Regarding the failure of Barclays' compliance department to act, an executive at a rival bank told the Financial Times: 'At our firm, we would immediately have sent in internal auditors.'

The independent review will be headed by an as-yet-undisclosed independent figure and will consider whether criminal sanctions for manipulation of Libor can be introduced. A speedy response to the issue is expected, with amendments to the Financial Services Bill this summer.

MPs on the Treasury Select Committee will grill Mr Diamond over who at Barclays knew about the Libor 'scam' and how the issue had been dealt with. The committee has also asked the bank's chairman Marcus Agius and other non-executives to appear on Wednesday.

WHY IS LIBOR IMPORTANT?

Libor is the interest banks charge to borrow from each other.

Banks rely on this money to lend to customers and businesses - so the rate they pay to borrow consequently affects how much they charge their customers on loans and mortgages.

An increase in Libor can add hundreds of pounds to householdsâ€™ annual mortgage repayments or a loan to a small business.

Committee chairman Andrew Tyrie, a Conservative MP, said: 'The Libor interest rate benchmark - crucial to transactions right across the economy and affecting millions of people - was systematically rigged over a period of years.

'It appears that many banks were involved and Barclays were the first to own up. This is the most damaging scam I can recall.

'The reputation of Britain's financial services industry has been severely tarnished, albeit unfairly for the overwhelming majority unconnected with the scam.

'The public's trust in banks has been even further eroded. Restoring the reputational damage must begin immediately. Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out.

'We also need to be given confidence that this has been put right.'

Ministers are considering setting up a separate review into the professional standards of bankers.

Prime Minister David Cameron last night launched his strongest attack yet on Bob Diamond, Britainâ€™s highest paid bank boss.

The Barclays chief executive is facing growing pressure to resign after it emerged that his staff made millions by fixing the interbank lending rate Libor.

Asked whether Mr Diamond, who earned Â£18million last year, was the right man to lead Barclays, the Prime Minister replied: â€˜I canâ€™t say that. He has questions to answer.â€™

Barclays was fined Â£290million for the market manipulation offences last Wednesday, settling with U.S. and UK regulators. Around 20 banks are being investigated in all.

LIBOR: THE 'GLOBAL ECONOMY'S PULSE-RATE'

HOW IS IT SET?

The rate is set every morning by a panel of banks and overseen by trade body the British Bankersâ€™ Association. Each bank sets the rates at which it believes it can borrow, from overnight to 12 months. There are 150 Libor rates, spanning ten currencies and 15 time periods.

WHAT HAS BARCLAYS BEEN DOING?

Barclaysâ€™ traders speculating on movements in interest rates were manipulating Libor in an effort to make huge profits.

Its traders were conspiring with the â€˜submittersâ€™ at the bank which lodge their Libor rates every morning. Depending on the way they were betting, traders would urge these submitters to increase the Libor rate or lower it.

Barclaysâ€™ traders also conspired with ex-employees working at other banks to try to influence their Libor submissions. During the financial crisis Barclays also fiddled the figures to dupe the market into thinking it was more financially sound than it was.

Libor is often seen as a barometer of how healthy a bank is. Just as customers with bad credit records have to pay higher interest rates, banks which are deemed in poor financial health are charged more to borrow. Barclays became anxious that its Libor rate was higher than many of its peers and that they were fiddling the figures. It decided to join the party.

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ARE ANY OTHER BANKS DOING THIS?

It is likely this is just the tip of the iceberg. Barclays is just the first to get caught.

For the last two years a dozen regulators on three continents have been combing through the files of more than 20 banks involved in the rate setting process.

Swiss bank UBS is understood to have already suspended a number of traders. Royal Bank of Scotland, Lloyds, and HSBC yesterday said they were helping the Financial Services Authority with its enquiries.