Record fine for Barclays over Libor rigging

 

GEORGE OSBORNE yesterday threatened tougher sanctions for banks after Barclays was hit with a record fine for trying to manipulate a benchmark interest rate.

Shares in Barclays fell more than 15 per cent at one stage, with Royal Bank of Scotland, Lloyds Banking Group and HSBC also down sharply.

Promising swift action, the chancellor said the British government would consider widening the criminal market abuse regime to include over-the-counter derivatives and manipulation of the London interbank offered rate, or Libor.

The coalition is already reforming the regulatory regime and dismantling the regulator, the Financial Services Authority.

Mr Osborne also told the House of Commons the government would be publishing a response to the report on the failure of RBS next week, which would consider criminal sanctions for directors of failed banks.

Fines made by the FSA and its successors could benefit the taxpayer, rather than to reduce the levy the financial sector must pay to fund the regulator, Mr Osborne added.

Dubbing the period from 2005 to 2007 “the age of irresponsibility”, he attacked the previous Labour government saying it was “literally clueless” when Barclays was manipulating Libor.

The scandal could be a defining moment in the relationship between banks and politicians. Alistair Darling, chancellor at the time of the financial crash, said it represented a clear breakdown of trust.

Mr Darling said the Libor rate was one of the key indicators used by the Treasury to assess the strength of banks at the height of the 2008 crisis but he now realised the measure was seriously flawed.

“If you can’t trust banks on something as basic as this, what confidence can you have in them,” he said.

“The whole thing stinks. The banking industry needs this news like a hole in the head and they have only themselves to blame – again.”

If you can’t trust banks on something as basic as this, what confidence can you have in them?

Mr Darling said there needed to be independent scrutiny of Libor to restore its credibility as an international benchmark and that the FSA must name those responsible at Barclays.

“If the FSA doesn’t know, it should find out,” he said. “Then they have to form a judgment on whether this is a regulatory offence or something more serious.

“I don’t think they can just leave it as a fine: it’s neither here nor there for the bank. It’s a gesture, although of course there is the question of reputational damage.”

The British Bankers’ Association – which oversees the setting of Libor rates – also asked the government yesterday to consider regulating the process.

David Cameron labelled the affair a “scandal” and “extremely serious”. The prime minister said accountability should go all the way to the top of the bank. But asked earlier if chief executive Bob Diamond should resign, he said: “Let them answer those questions first.”

US and UK authorities fined Barclays a record £290 million for trying to manipulate Libor over five years and across three continents. Investigations into other banks are continuing. – Copyright The Financial Times Limited 2012