One year ago, on 27 June 2012, Barclays Bank was handed financial penalties totalling GBP 290 million (USD 450 million) for manipulating bank interest rates, a deception which had a prolonged knock-on effect on the cost of mortgage lending and business loans. Has the past twelve months consolidated the financial services community’s attempts to clean up its act and restore public confidence?
The London Interbank Offered Rate – or LIBOR – has an influence well beyond the city itself. As the interest rate at which banks may borrow from each other, it is the most common benchmark for short term interest rates worldwide and guides borrowing terms for an estimated USD 360 trillion of financial products. Like many financial guidelines, its application is most keenly felt in times of hardship. Times like these. In recent years, an unpredictable LIBOR rate has affected banks’ ability to borrow from and lend to each other. The end consumer has paid a heavy price, with banks compensating for cash shortages by upping their interest rates to customers.
The revelation that LIBOR rates had been manipulated caused understandable anger. Barclays staff testified that the bank had manipulated the rates on an ongoing basis between 2005 and 2009. The bank accrued substantial profits via speculative investment on these rates, and as the financial crisis of 2008/2009 deepened, it also created an artificial view of the bank’s commercial health.
It’s worth noting that Barclays didn’t accept a penny of public funding during the British government’s bailout of banks starting in 2008. (RBS, who have also found themselves in the dock over LIBOR manipulation, were famously subsidised to the tune of GBP 45 billion) But the bank’s reputation, and that of the wider sector, has taken a beating. Questions have arisen over the rights of investors who lost out as a result of rate doctoring. While they might face an uphill battle to prove the extent of liability, it’s been suggested that investors might have lost anything up to USD 175 billion. In recent years, the mountain of successful actions by customers claiming to have been mis-sold PPI indicates that once a level of liability is established, the floodgates can open. This is a different and more complex scenario, but the possibility of multiple successful claims is very real, and there is no doubt where public sympathy will lie.
When Business Secretary Vince Cable spoke of the “cesspit of British banking” he struck a populist chord. This was echoed by Lord Turner, the departing chairman of the FSA, when he referred to a “degree of cynicism and greed which is really quite shocking”. Lord Turner could be forgiven for his disillusionment; the FSA itself was disbanded due to its failure to adequately oversee banking activity.
Restoring public confidence will be a mammoth task, and while LIBOR reform is clearly needed, this reform may not be as swift or as wide ranging as many would want. The fact that both Barclays and RBS have hand-picked men with distinguished Financial Services Authority backgrounds to head up their compliance operations speaks volumes.
RBS have appointed former Financial Services Authority managing director Jon Pain to the newly created role of group head of conduct and regulatory affairs. At Barclays, meanwhile, former FSA chief Hector Sants is now head of compliance. EVS Translations works closely with blue chip financial institutions all over the world, helping them to play by the rules and meet the most stringent regulatory requirements, in any language. We’re pleased to note that these appointments appear to be tailor made to ensure compliance and transparency, rebuilding the banks’ relationships with regulators, governments and hopefully, in time, with the public. We wish them good fortune.
P.S. Since this article was published the UK Treasury has announced that ownership of LIBOR will be transferred from the BBA to NYSE Euronext, the US company that manages the New York Stock Exchange. We hope this will be seen as an indicator that the BBA, and British banking, is open to outside scrutiny and greater transparency.
