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Barclays are attempting to obscure their deception

July 2, 2012 2:36 pm

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Barclays record fine was for the numerous breeches of Principle 5 of the FSA Principles for Businesses which took place between January 2005 and July 2008. The latest reports that a phone call between Deputy Governor of the Bank of England, Paul Tucker and Bob Diamond took place on 29 October 2008, was in fact three months after this three year period was over.

I’m now asking why has the FSA failed to act on the period after October 2008 as principles 2, 3 and 5 were broken?  In fact LIBOR rates had fallen significantly in the weeks up to 29 October and from previous years.

I’m concerned that Barclays are attempting to shift attention to a secondary issue, albeit one that demonstrates how Diamond called the shots in Barclays at the time and I’m calling on MP’s not to be distracted by this.  The attempts to draw in the Bank Of England – who I have repeatedly clashed with over their handling of the financial crisis – appears to be a stitch up in order to create a distraction for Wednesdays Treasury committee.

I am arguing that the fundamental issues remain:

  • Why did Diamond allow three years of proven interest rate deception and dishonesty?
  • Why has nobody been sacked from amongst his staff?
  • Why has he kept his bonus over this three year period and similarly why have his colleagues?
  • Why has government not already acted to regulate the self reporting of banks to banks under LIBOR?
  • Why were the Wall Street Journal warnings of May 2008 ignored?
  • When will prosecutions in the UK begin?
  • What is the projected cost of US class actions registered in 2011?
  • When will Bob Diamond resign?

John Mann is the MP for Bassetlaw and a member of the Treasury select committee

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  • 1earthmother2

    Ann Pettifor’s petition raised the involvement of the British Banking Association in this process.I hope the BBA’s responsiblities are subject to scrutiny too.

  • Bill Lockhart

    The author might perhaps like to learn the difference between the English words ‘breech’
    and ‘breach’. Your ignorance is not my bliss.
    I suppose, though I do not know, that the FSA cannily took its approach from the prevailing attitude in Government at the time. That was, in case the author has forgotten, the hands-off, light-touch régime so fervently espoused by the laissez-faire fanatics Blair and Brown.

    • trotters1957

      All three main parties and indeed the ideological consensus over the last 20 years has been for light touch regulation, particularly in financial services.
      The Labour Party is a social democratic party and generally believes in the reform of capitalism and in the free market mechanism.

      New Labour was wrong to trust both the “free market” and the individuals working with in these markets.

      I’m glad, and assume you are too, that the myth of free markets is being unraveled and that greater democratic control of markets is now being discussed as opposed to the neo-liberal sham we’ve had for 30 years.

    • Dave Postles

       http://www.bloomberg.com/news/2012-06-25/libor-guardians-said-to-resist-changes-to-broken-benchmark-rate.html

      This is how it works.

  • JoeDM

    So who was the responsible organisation for regulating Barclays – FSA or Bank of England?

    Yet another result of Labour’s shambolic ‘tripartite’  regulation of Financial Services under Balls and Brown.

    • Dave Postles

       Libor = British Banking Association since 1986.  Euribor = nothing to do with UK government.  The malfeasance was perpetrated by the bankers.

      • Hugh

        You seem strangely obsessed with repeating this, but it appears to ignore three points:

        - Whatever was said, we know Barclays did discuss its approach to reporting its lending rate with the Bank of England; clearly it felt the Bank had some input on the question.
        - Yes, we know the malfeasance was perpetrated by the bankers; that doesn’t mean better regulation couldn’t have prevented it. No one is accusing Ed Balls of fiddling the Libor rate himself.
        - And, similarly, if the BBA – a trade assocation – was left to calculate and report Libor unsupervised, there is nothing to say that, again, that was not negligent in itself and that regulation could not have been improved. You might say the important part is that the responsibility has been with the BBA since 1986, but really I’d say it’s not unfair to charge that a government in 2008 might have been thinking a bit more in depth about the importance of Libor; there’s also no evidence of it being fiddled at other times.

        There are, of course,  good arguments to be given as to why the previous government was not at fault for failing to safeguard against such an occurrence, but simply pointing out that it was the bank that committed the act and that the government wasn’t regulating this aspect of the industry isn’t really an answer. Or, if it is, it is an answer to practically any charge of negligence in failing to regulate adequately.

        • Dave Postles

           Libor is a private arrangement of the BBA.  Any changes to Libor remain the remit of the BBA. 

          http://www.bloomberg.com/news/2012-06-25/libor-guardians-said-to-resist-changes-to-broken-benchmark-rate.html

          We do not know the full circumstances of Diamond’s chat with Tucker.  For all we know – and we don’t at this stage – it might have resulted from the threat of investigation by the US DoJ, the CFTC, and the FSA in combination.  It has taken a very long time to accumulate the information.  I’m not sure when Barclays – as a result of these investigations – decided to spill the beans and so implicate the other banks too.

          • Hugh

             You seem to be simply repeating your point.  Yes, Libor is a “private arrangement” of the BBA; yes, the last government had full competence to legislate (or may not even have required legislation) to change that.

          • Dave Postles

            It’s a private arrangement.  The government can’t change that private arrangement.  The FSA can investigate on the grounds of business ethics.  Criminal prosecutions can be obtained by an intention to defraud under the Frauds Act.  The government cannot regulate on the interest rates which private organizations charge each other.  I refer you back to the Bloomberg piece.

          • Hugh

             ” The government can’t change that private arrangement”

            I think you’ll find it can; much as it has regulated the industry in many other respects. That would not involve telling the banks how much to charge to lend to each other, but simply to regulate to force Libor to be calculated using actual trades or some other way in which the risk of manipulation is countered.

          • Dave Postles

            Even if that is the case – and I’m not convinced – it would not have prevented the manipulation of the Euribor rate by Barclays (since that is also an offered rate).  It would also constitute blame on all governments since 1986 for allowing an offered rate.  In any case, the banks would have resisted, just as the BBA review refused to change the formula earlier this year. 

        • Dave Postles

           ’ there’s also no evidence of it being fiddled at other times.’
          It’s difficult to prove because it’s an estimate of an offer not the actual rate, which is why it has been so difficult to prove that (a) it was manipulated and (b) there have been consequences for third parties (i.e. that the manipulation was ‘effective’).

          • Hugh

             So, to put it another way, there’s no evidence that is has been fiddled at other times.

          • Dave Postles

            Or to put it another way: it might well have been abused in the past, but it was impossible to detect it, because telephone conversations are not retained like emails.  It was the capitulation by Barclays in handing over those emails which provided the FBI with the proof of the racket. 

        • Dave Postles

           … and the manipulation of Euribor which also took time to come to light (and note that Barclays is the only ‘UK’ bank to be involved in the setting of Euribor)?

          • Hugh

             The only person who has mentioned Euribor in this discussion is you, so I’m unsure of your point. It certainly doesn’t make any difference to the points I’ve made or make your observation that the situation was down to the BBA and the banks any more persuasive.

          • Dave Postles

             The fine on Barclays by the DoJ involved manipulation of Euribor not just Libor.

  • Demian Thorne

    If people are not properly regulated and scrutinised, carry out deals sub rosa, and work under a cloud they fiddle. We’ve seen it with bankers, MPs, and all sorts of other types of privileged and trusted professionals. The only permanent solution to such dishonesty is effective regulation, scrutiny, transparency, and severe penalties for those who defy or break agreed codes of conduct and behaviour, i.e., custodial sentences. And if the bankers and similar threaten to move their business overseas if our nation decides to do these things then let them go. If they have nothing to hide and are above board why would they object if they have nothing to hide?  

  • Amber Star

    What did the Libor ‘fiddling’ do in the run-up to the Lehman crash? It may have concealed the illiquidity building within the banking system, leaving governments in a last minute panic to prevent a full-on run on the banks & the inevitable crash which would follow.

    Governments who’d seen the correct figures might have had a real forewarning of the crisis which was coming. They could’ve moved to inject liquidity (£325Bn of QE) much faster than they did – & with many more conditions attached.

    The loss of confidence & following recession might possibly have been avoided by swifter more appropriate action.

    Therefore, unlike the author, I have little interest in the traders who cheated for personal profit. Prosecute them for fraud. What I am interested in is: When did the Bank of England become aware that the rates were being manipulated to disguise the perilous position which the banks were in & did the BoE immediately inform Chancellor Darling?

    If the BoE didn’t inform Darling, I’d like to know why not – & Mervyn King should be held accountable for that decision. If the BoE did inform Darling, I’d like to know what his recation was; & his justification for the actions he took or lack of action, if he did nothing.

    In the extreme, if the systematic rate fiddling was known & concealed from Darling & Brown, thereby denying them knowledge about the illiquidity in the banking system in 2007/8, the rate fiddling could be said to have cost Labour the 2010 election. So I think we are owed a full investigation of this with Tucker, King & Darling under oath to tell the truth about what went on.

    • Dave Postles

       Very good questions.

      • Amber Star

        Dave, thanks for your support.

         If the BBA & the BoE were aware that something was going on but failed to inform the government, our entire economy & our democracy may have been undermined by collusion in the banking system to fiddle rates & hide illiquidity.

         I thought that nothing could surprise me anymore but I am actually genuinely shocked that this even exists as a possibility! 

  • John Dore

    This is going to get explosive. Could it be that this was a secret government initiative? From order-order.com. How will this play out?

    The second LIBOR fixing scandal is of a different order altogether – it involves the wholesale systematic substantial misrepresentation of true LIBOR, with the encouragement of the Treasury, the FSA and in particular the Bank of England. The policy was to under-report LIBOR rates at much lower levels than were actually trading in the market. This deliberate policy was to cover-up the increased risks to the UK banking system revealed by higher LIBOR rates.It is emerging that Gordon Brown’s economic adviser in Downing Street, Shriti Vadera, an ex-UBS investment banker, circulated a paper on ”Reducing Libor” at the height of the banking crisis, which she argued would be “a major contribution to the stability of the banking system and to the health of the economy”.

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