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Q&A: what is Libor and what did the banks do to it?
Over a billion pounds has been handed out in fines over the Libor scandal, but what exactly is it?
Barclays was fined in June last year and was found by US and UK regulators to have manipulated or ‘fixed’ its rate submissions and fined a total of £290 million. The fine from the UK regulator made up £59.5 million and the rest was fines from the US Department of Justice (DoJ) and the US Commodity Futures Trading Commission (CFTC).
In an open letter to the chairman of the Treasury Select Committee, Bob Diamond, then chief executive of Barclays, explained that the authorities had highlighted two issues.
First, a small number of individual traders had attempted to influence the bank’s interest rate submissions in order to boost their own desk’s profits. Operating purely for their own benefit, Diamond said this behaviour was 'reprehensible', but he stressed that no one more senior than immediate desk supervisors were aware of the requests by traders.
The second, and arguably more concerning, issue raised was that during the credit crisis Barclays had reduced its Libor submissions to protect the reputation of the bank from negative speculation which arose as a result of Barclays’ higher rate submissions in comparison with other banks – i.e. the bank wanted to make itself look stronger.
Barclays has since revealed that the bank's chief operating officer Jerry del Missier was the most senior member of staff to give the order to rig rates.
The bank released a note written by Diamond detailing a phone call he had received from Paul Tucker, the deputy governor of the Bank, during which Tucker said he'd 'received calls from a number of senior figures within Whitehall to question why Barclays was always towards the top end of the Libor pricing’.
Diamond then relayed this conversation to del Missier who interpreted it as an instruction to lower the rate and therefore passed down a direction to that effect to rate submitters. Diamond, however, maintains he did not believe it was an instruction, and said he knew nothing of what was being done until the FSA released its findings in June.
UBS received the FSA’s largest ever fine of £160 million in December but this was just part of the £940 million it had to pay out to the DoJ and CTFC and the Swiss Financial Market Supervisory Authority,
The FSA found UBS traders routinely made requests to those responsible for submitting Libor rates to change the rates in order to make a profit. UBS also allowed traders to make the submissions to the Libor panel.
UBS traders colluded with brokers to influence Japanese Yen Libor submissions and paid the brokers corrupt brokerage payments as a thank-you. It found at least 2,000 documented requests for inappropriate Libor submissions but it cannot judge the number of requests made that weren’t written down.
UBS traders openly discussed Libor manipulation in internal open chat forums and in group emails.
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