Barclays bank: too big to obey the rules

“There was a period of remorse and apology for banks, I think that period needs to be over,” Barclays’ boss Bob Diamond declared last year. Not if Wednesday’s news is anything to go by, Mr Diamond, not by a long way. The bank yesterday agreed to pay fines totalling £290m to British and American authorities, to settle charges of market rigging. The £60m it will hand over to the Financial Services Authority alone is biggest penalty ever levied by the City watchdog, yet the nature of the alleged transgression is so fundamental, so serious and, according to officials, so “widespread” that it appears utterly inadequate. Nor will the decision of Mr Diamond and his team to apologise and forfeit this year’s bonuses take sting out of the matter. What regulators appears to have uncovered is a scam at heart of a £350tn market; one ultimately affects how much families pay on their tracker mortgages, as well as the costs of transactions for big City institutions. It should not be settled with a fine, no matter how large, but must be followed up with a further investigation into Barclays, making public just how many employees took part (rather than yesterday’s mentions of Trader C and Manager E), and how they will be punished, up to and including criminal proceedings. Not only that, but it also needs to be uncovered just how far this market-fixing went. Certainly, the clear implication of yesterday’s comment from the Commodity Futures Trading Commission that Barclays’ staff “co-ordinated with and aided and abetted traders at other banks” indicates that Mr Diamond will not be last chief executive in firing line over this issue. Strip away the acronyms and the charges against Barclays are straightforward. Its traders and senior management are accused of tampering with two key interest rates to bolster their own profits. And they apparently did this not once, but repeatedly over four years. Indeed, the practice seems to have become so widespread that staff joke about it in emails: “Always happy to help, leave it with me, Sir.”; “Done … for you big boy”; “I love you”. This from the bank earlier this year held citizenship days for its staff, and which, through state guarantees and emergency provisions of liquidity, has been supported by British taxpayer. There has been much talk about banks being too big to fail, too big to bail. The picture presented by Wednesday’s charge sheets is altogether simpler: throughout boom and bust, Barclays staff saw themselves as being too big to play by rules. And likely result is that everyone else paid millions more than necessary to borrow. What’s more, they do not look like the only ones: this has all the makings of systemic scandal. (source: Editorial – The Guardian – 28/06/2012)

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26 Responses to Barclays bank: too big to obey the rules

  1. On the senior executive floor of Barclays’ steel and glass Canary Wharf headquarters, portraits of the bank’s Quaker founders adorn the walls outside the suites of the company’s current crop of bosses. What would they wonder if they knew what fate had befallen their much-admired and trusted institution? More to the point, what do their modern-day successors think, as they go about their business? For, heaven forfend that the chairman, Marcus Agius, and the chief executive, Bob Diamond, should even meet their forebears’ collective gaze. They have an awful lot of explaining to do. Not least, how a bank that once stood for honesty and solidity should be fined £290m for manipulating the interest rate upon which millions of individuals and businesses across the globe rely. The traders who did so – it is not clear if they acted with their superiors’ cognisance but if they did not, then why didn’t the highly paid corporate titans know what was occurring? – were out to maximise profits from their dealing, represented by that most insidious of peculiarly City carrots, the end-of-year bonus. Barclays, we know, was not alone – other banks, too, have been caught up in the same scandal. Indeed, rather than fight the regulators, Barclays has done the honourable thing of coming clean. But lauding stops there. The bank’s behaviour was reprehensible. It may, who knows, prove criminal. This from an organisation that prided itself on having escaped the fate of its rivals as the state had to intervene to directly rescue them, that liked to point to its origins as evidence of some higher calling (…..) Politicians have attempted with varying degrees of rigour to introduce rules preventing a recurrence. Mostly, in the face of determined lobbying by the banks (led in the UK by Barclays), they have retreated or watered down their proposed measures. But it is obvious now that the authorities are only scratching at the surface: a far stronger hand is required (…..)

    http://www.independent.co.uk/opinion/leading-articles/leading-article-a-sick-banking-culture-that-cannot-be-tolerated-7897002.html

  2. The Bank of England was dragged into the interest-rate rigging scandal last night after an email was released suggesting it may have encouraged banks to doctor their borrowing costs during the financial crisis. The email – an account of a conversation between the chief executive of Barclays, Bob Diamond, and the Deputy Governor of the Bank of England, Paul Tucker – appears to show Barclays was under the impression that manipulating rates was being sanctioned at the highest level. The email was released by Barclays ahead of today’s high-profile showdown between Mr Diamond and MPs on the Treasury Select Committee. Mr Diamond is certain to be asked what advice he received from the Bank of England on the reporting of Barclays’ Libor rates. Any suggestion that the manipulation was authorised by Mr Tucker, the Permanent Secretary at the Treasury Sir Nicholas Macpherson or government ministers would be highly damaging and increase pressure for a full public inquiry (…..)

    http://www.independent.co.uk/news/uk/politics/the-libor-conspiracy-were-the-bank-of-england-and-whitehall-in-on-it-7906916.html

  3. (…..) As the LIBOR scandal descends into a political scandal, let’s remember that the question is not whether the Westminster/Financial complex was complicit – of course it was complicit! The point is precisely that this is the nexus we need to dismantle to have a healthier politics and a healthier finance. There is a special irony to the complicity of this case. The LIBOR fix was perpetrated days before a massive Qatari Sovereign Wealth Fund injection of capital into Barclays. Without it, Barclays may well have gone the way of RBS – into the public sector, that is. With it, Barclays has claimed ever since that it should not be penally regulated as the other banks have been because it did not take any public money. In other words, without that lie, the public might well now be in a much stronger position to actually disentangle the shady collusion between politics and finance in this country. There always used to be a strong distinction made in the police force between those who were “bent for themselves” or “bent for the job”. The first ws reprehensible, the second should be allowed by any sensible, self-respecting body. Diamond is now trying to claim that the early (pre-2008) practice of LIBOR fixing is just a matter of traders increasing their bonuses … so as long as they are punishd for being “bent for themselves”, and as long as he is vindicated as having been “bent for the job” in 2008, everything can carry on as usual. I am sure he expects to be back in charge of Barclays once everyone has seen the sense of this defence (…..)

    http://www.opendemocracy.net/openeconomy/tony-curzon-price/but-you-told-me-i-could-sir-bob-diamonds-bent-for-job-defence

  4. (…..) The disclosures put a spotlight on the interaction between regulators and big banks over the setting of interest rates during the financial crisis, raising questions about what authorities knew about the practice. Investigators cast some doubt on Barclays’ view. The bank never explicitly told regulators that it was reporting false interest rates that amounted to manipulation, according to regulatory documents. “Barclays is just one example of why we need a culture shift in the financial world — and that means all the way to the top,” said Bart Chilton, a member of the Commodity Futures Trading Commission, the American regulator leading the investigation.


    After the Barclays settlement, American and British authorities are now shifting their focus to a pattern of wrongdoing on Wall Street, pursuing action against more than 10 big banks scattered across the globe, including UBS, JPMorgan and Citigroup. Authorities suspect that big banks reported false rates throughout the crisis to squeeze out extra trading profits and mask their true financial health. The Barclays case is the first blow in a series of potential actions against the banks that help set the London interbank offered rate, which is used to determine the borrowing costs for numerous financial products, including student loans, mortgages and credit cards.

    Libor and the other interbank rates are published daily, based on surveys from banks about the rates at which they could borrow money in the financial markets. Amid the Barclays fallout, other British banks are now scrambling to settle with authorities, according to people with knowledge of the matter who spoke on the condition of anonymity. American regulators have set their sights on a large European institution, another person said. The Commodity Futures Trading Commission is building several cases in piecemeal fashion, choosing at this point to mount evidence against each bank rather than unveil a single global settlement, according to the people. The next case is not expected to be imminent. The agency pursued Barclays first, viewing it as a case study in Libor manipulation. The enforcement action hit all the flash points in the broad investigation, exposing a multiyear scheme touching nearly every layer of management and business practices across three continents. Regulators accused the bank of lowering its Libor submissions to deflect concerns about its high borrowing costs amid the crisis. Mr. Diamond’s top deputies sought rates in line with rival banks and directed employees not to put your “head above the parapet,” according to regulatory filings. Barclays was also accused of “aiding attempts by other banks to manipulate” interest rates, further underscoring the clubby nature of Wall Street. In some cases, bank employees coordinated with former colleagues who worked at rival firms as a way to manipulate the rates, according to the regulatory documents. “This scandal is another indication of how the massive growth of the financial markets did not go hand-in-hand with any thought about how to control the trading activity,” said Pete Hahn, a fellow at Cass Business School in London (…..)

    http://dealbook.nytimes.com/2012/07/03/barclays-c-e-o-resigns-as-bank-frames-a-defense/

  5. Professor Uziel Nogueira says: The 99% always in the short end. Right place but at the wrong time. Jobs move overseas while Wall Street steals the money. What else can go wrong now?


    another war in the Middle East and oil prices at $ 200 a barrel?

    http://dealbook.nytimes.com/2012/07/03/barclays-c-e-o-resigns-as-bank-frames-a-defense/

  6. (…..) The Treasury Committee has been roundly abused – and rightly so – for failing to pinion Bob Diamond to the wall and cause him to admit all. But their fault was not in the lack of forensic questioning. On other reports on policy and expenditure, they’ve been very good. Their mistake was to act as politicians and to go for what, to them, was the main story – that is, the culpability of the Bank of England and ministers in encouraging Barclays to fudge the figures during the finanical meltdown. Hopes that Bob Diamond would dish the dirt on the Bank of England for forcing him out were illusory. He plans to stay on in the financial world. You don’t do that by making an enemy of the chief regulator. No, what the committee should have concentrated on was the years before the financial crisis when bank dealers distorted borrowing rates for the sake of personal gain. We don’t need a judge to find out what they did. The US regulators have done that in a detail that no judicial inquiry could hope to emulate. What we do need to find out is why it took the US Commodities Exchange to take up this case in the first place rather than the authorities in London, where the Libor rate is fixed and where the main fraud appears to have been perpetrated. The one thing that the questioning of Bob Diamond did throw up was the huge disparity that exists between how bankers see themselves and how the outside world views their business. To Diamond, the malfeasance of the Libor dealers was reprehensible but tight control of their activities was unnecessary because the market – until the financial crisis – was relatively risk-free. In other words, his attitude to supervision was one of assessing the exposure of the bank, not one of ensuring a fair market for the good of finance and the community. To the outside world, it is a total surprise that a market that can set the rates for trillions of dollars could be carried out on the basis not of actual deals but the self-reported perceived rates of the main participants. It’s not what they thought markets were about or what they believe bankers should be doing. The Libor scandal raises urgent, and complex, questions of regulation. How do you make markets such as Libor transparent and fair. We need an inquiry of poachers turned gamekeepers to tackle those issues. But we also need an inquiry that tries to bridge the chasm of understanding that now exists between banking and the public. And for that we need people who can ask straightforward questions – not judges intent on guilt or politicians determined on blame. It may make time. But if the City of London is ever to regain its reputation, it must regain our trust (…..)

    http://www.independent.co.uk/opinion/commentators/adrian-hamilton/adrian-hamilton-why-didnt-we-ask-diamond-the-right-questions-7917825.html

  7. (…..) Which brings me to the second big surprise. Britain and America have reacted to the Libor scandal in completely different ways. Britain is in an utter frenzy over it, with wall-to-wall coverage, and the most respectable, pro-business publications expressing outrage. Yes, Barclays is a British bank, and the first word in Libor is “London.” The Economist ran a headline about the scandal that read, in its entirety, “Banksters”. Yet, on these shores, the reaction has been mainly a shrug. Perhaps we’re suffering from bank-scandal fatigue, having lived through Bank of America’s various travails, and the Goldman Sachs revelations, and, most recently, the big JPMorgan Chase trading loss. Or maybe Libor is just hard to gets one’s head around. But the Brits have this one right. They may not understand the intricacies of Libor any better than we do, but they sense, powerfully, that banks have once again made a mockery of the role that society entrusts to them. “Why has the scandal created outrage in Britain? Because it truly is outrageous,” said Karen Petrou, the managing partner of Federal Financial Analytics. “They weren’t supposed to be fixing that rate — no matter what the reason.” She continued: “If I give you my money, I need to be able to trust you with it. If you can only be trusted via regulation, then you might as well be a utility. And if banks can’t be trusted to manage their trading desks, then we need to rethink our whole model of banking.” Petrou is not an advocate of returning to the days of Glass-Steagall, the Depression-era law that separated investment banking and commercial banking. But with the Libor scandal, she said, she could certainly understand the growing calls for it. Barclays, of course, is hardly the only big bank that manipulated Libor for fun and profit. It is simply the first to admit its wrongdoing and settle with the government. The word is that just about every big bank is under investigation for playing games with Libor, including JPMorgan Chase, Citigroup and other American-based financial giants. Which means there is going to be a lot more opportunities for Americans to become outraged over this scandal. And, maybe, to finally summon the will to change banking once and for all.

    http://www.nytimes.com/2012/07/07/opinion/libors-dirty-laundry.html

  8. Professor Uziel Nogueira says: In the 90s, Lawrence Summers was the main political/intellectual force shaping up IMF lending programs to countries in financial trouble. A decade plagued by financial crisis, starting with Mexico, followed by Asia, Russia, Brazil and Argentina. The main conditionality to get an IMF loan was to liberalize the financial sector and open the capital account. In other words, to remove control of banks and allow the free flow of foreign currency into the economy. Both measures were tailored made to benefit US banks and the dollar. In 1994, Bill Clinton even boosted that the Treasury Department made a huge profit by lending money to a broken Mexico. Lawrence Summers, in his Harvard-type professorial manner, used to explain a basic fact about the US economy during the 90s. According to him, the US financial system was most competitive sector of the economy. Consequently, the dollar was the MOST competitive currency in the world. The BEST financial system in the world came to an end when Lehman Brothers filed for Chapter 11 bankruptcy protection on September 15, 2008.


    Barclay’s manipulation of the Libor rate (in collusion with US banks?) is just another spasm of an outdated and anachronistic financial system.

    In retrospective, perhaps Lawrence Summer was right about the sector and the dollar. Today, however, the financial sector is beginning to look like Chrysler and the auto industry of the 70s. Is this the end of the last competitive sector of the US economy?

    http://www.nytimes.com/2012/07/07/opinion/libors-dirty-laundry.html

  9. Politicians have been virtually “useless” so far at getting to the truth behind the banking scandal, one of the MPs responsible for investigating the affair has admitted. Andrea Leadsom, whose forensic questioning of the former chief executive of Barclays, Bob Diamond, led to his only uncomfortable moments during last week’s cross-examination by the Commons Treasury Select Committee, said: “I don’t think we felt we did a fantastic job. It’s a fair criticism to say, ‘You guys were useless’. “We had great weaknesses in that we didn’t have email trails. We didn’t have recordings of the morning meetings where you could point to what had been said. All we really had were the regulators’ reports, what we’d seen in the media.” Her frank remarks, in an interview with The Independent, will raise doubts about whether the larger parliamentary inquiry being set up to investigate the banking scandal will be able to uncover the whole truth. David Cameron has rejected Labour’s calls for a judge-led inquiry, arguing that it would take too long. Several of the MPs who questioned Mr Diamond last week are now considering calling him back for a second bout because they are dissatisfied with his answers. Paul Tucker, the Deputy Governor of the Bank of England, will be questioned by the same committee today about the now-infamous telephone call he had with Mr Diamond at the height of the banking crisis in 2008. Any clash between his evidence and Mr Diamond’s will add to the pressure for the former Barclays head to be recalled (…..)

    http://www.independent.co.uk/news/uk/politics/were-powerless-to-get-truth-about-bankers-says-key-mp-7923528.html

  10. (…..) According to financial industry sources, not only Barclays, but also the Royal Bank of Scotland (RBS), the Swiss bank UBS and Citigroup are suspected of having systematically contributed incorrect interest rates for the LIBOR calculations, in part with the knowledge of senior executives. The institutions have yet not commented on these accusations. UBS had triggered the investigations with voluntary declarations. In the case of the other banks, the investigators apparently assume that the interest-rate manipulations were the work of individuals. Emails that securities traders exchanged with bank employees who reported the interest rates for the LIBOR calculation to the BBA illustrate how they did it. “The big day (has) arrived,” one derivatives trader wrote in an email to the Barclay LIBOR submitter in March 2006. He needed a fixed three-month rate, and pointed out that “as always, any help (would) be greatly appreciated.” The LIBOR submitter responded that he would report a rate that was lower by one basis point. “When I retire and write a book about this business, your name will be written in golden letters,” the grateful trader wrote back. WestLB and Deutsche Bank are among the banks investigators are targeting. In its most recent quarterly report, Germany’s largest financial group states that it is being investigated by several regulatory agencies. The report notes that Deutsche Bank is cooperating with regulators, but that it has no further comment. “If offences similar to those that apparently occurred at Barclays are uncovered at Deutsche Bank during the course of the investigations, everything will have to be investigated,” says Hans-Christoph Hirt of the British shareholder advisory service Hermes. “It would be an opportunity for the new Supervisory Board Chairman Paul Achleitner to prove that he takes seriously the concerns that shareholders have clearly articulated.” The matter could also prove to be uncomfortable for the bank’s new co-CEOs Anshu Jain and Jürgen Fitschen. For months now, outside auditors have, at the bank’s request, been examining whether its traders were involved in manipulations. Two employees have already been suspended. If the suspicions against Deutsche Bank are confirmed, it could become the most expensive legal legacy from the days of the financial crisis, says one insider. This isn’t just because of the investigators, but also because of people like the Frankfurt banker Friedrich von Metzler. Metzler’s holding company includes an investment company that has filed an action for damages against Deutsche Bank and other banks in a New York court. Many investment companies are likely to join the suit, because they, as the trustees of their investors, must file claims if there is a justifiable suspicion that they were harmed. The plaintiffs claim that the LIBOR banks had an incentive to push down the interest rate, especially during the 2007 and 2008 financial crisis. Investors were questioning the stability of banks at the time. It was in the financial institutions’ interests to claim that their borrowing costs were as low as possible. Deutsche Bank, however, has always insisted that it never had any refinancing problems (…..)

    http://www.spiegel.de/international/business/barclays-affair-rocks-european-banking-industry-a-843525.html

  11. (…..) On Tuesday, the New York Fed said that it had received “occasional anecdotal reports from Barclays of problems with Libor” in late 2007, as the financial crisis was starting (…..) Barclays’ regulator in the United States is the Federal Reserve Bank of New York, which was run at the time by current Treasury Secretary Timothy F. Geithner. Diamond said that his bank had alerted the New York Fed to issues with Libor at least 12 times. After receiving initial reports in 2007, the New York Fed said, it made additional inquiries of Barclays about its Libor operations, and subsequently made suggestions for changes to British authorities. Geithner personally participated in several conversations with Barclays executives, according to his New York Fed calendar, later posted on the Web site of the New York Times. It wasn’t clear if these meetings focused on the Libor issues now coming to light. The House Financial Services Committee has sent the New York Fed a letter asking about its handling of the issue. The letter, signed by Rep. Randy Neugebauer (R-Tex.), chairman of the subcommittee of oversight and investigations, asked for all communications that relate to Barclays’ Libor issues between August 2007 and November 2009. On Tuesday, the Senate Banking Committee also said it would begin to hold meetings with individuals involved with the matter to learn more about the allegations and related enforcement actions. “It is important that we understand how any manipulation may impact American consumers and the U.S. financial system,” said committee chairman Sen. Tim Johnson (D-S.D.). He said he planned to ask Geithner and Federal Reserve Chairman Ben S. Bernanke about the matter in testimony later this month. The Treasury Department declined to comment.

    http://www.washingtonpost.com/business/economy/in-2007-new-york-fed-was-told-about-problems-with-libor/2012/07/10/gJQA4dJebW_story.html

  12. Perhaps the most surprising aspect of the Libor scandal is how familiar it seems. Sure, for some of the world’s leading banks to try to manipulate one of the most important interest rates in contemporary finance is clearly egregious. But is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it? Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners? The misconduct of the financial industry no longer surprises most Americans. Only about one in five has much trust in banks, according to Gallup polls, about half the level in 2007. And it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased over the last three years. We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.” The parade of financiers accused of misdeeds, booted from the executive suite and even occasionally jailed, is undermining this essential element. Have corporations lost whatever ethical compass they once had? Or does it just look that way because we are paying more attention than we used to? This is hard to answer because fraud and corruption are impossible to measure precisely. Perpetrators understandably do their best to hide the dirty deeds from public view. And public perceptions of fraud and corruption are often colored by people’s sense of dissatisfaction with their lives (…..)

    http://www.nytimes.com/2012/07/11/business/economy/the-spreading-scourge-of-corporate-corruption.html

  13. London Banker: I’ve been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices (…..)

    http://www.economonitor.com/blog/2012/07/lies-damn-lies-and-libor/

  14. While president of the Federal Reserve Bank of New York, Timothy F. Geithner pressed British regulators to reform the way a critical global benchmark called the London interbank offered rate, or Libor, is calculated, according to a June 1, 2008, e-mail obtained by The Washington Post. Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and establishing a “credible reporting procedure.” “We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible,” Geithner wrote. It’s unclear what other steps Geithner took and whether his efforts stopped any wrongdoing by banks. Last month, London-based Barclays, one of Europe’s largest banks, admitted that it schemed to manipulate Libor during the financial crisis — and its chief executive has asserted that regulators knew about its activities but didn’t do much to stop them. The scandal has led to the resignation of Barclays’s senior executives. With the Libor scandal threatening to migrate from London to Washington, pressure is growing on regulators and Geithner, who is now the Treasury secretary, to explain what they knew and when. On Thursday, several key Democratic senators called on the Justice Department to hold accountable bankers and regulators who failed to “stop wrongdoing that they knew, or should have known, about.” In an effort to address some of these questions, the New York Fed, which Geithner led from 2003 until he joined the Obama administration, is set to release a trove of documents Friday morning detailing its response to concerns raised as early as 2007 about Libor, which helps set the standard for $10 trillion worth of corporate bonds, credit cards, mortgages and other loans around the world (…..) In the byzantine world of banking regulation, the New York Fed is perhaps the most powerful player. Yet during the time that allegations about Libor were reported to the Fed, it was also in the middle of handling a metastasizing crisis in the financial sector. The investment bank Bear Stearns collapsed just weeks before Geithner had a meeting on April 28, 2008, titled “Fixing LIBOR,” according to his schedule. Events continued to go downhill that summer and fall. Officials at the Commodity Futures Trading Commission first began looking into the Libor issue after the Wall Street Journal and the Financial Times ran stories in early 2008 raising questions about market ma­nipu­la­tion. The CFTC approached the Justice Department. The Financial Services Authority in Britain joined in later that year (…..)

    http://www.washingtonpost.com/business/economy/geithner-drawn-into-libor-scandal/2012/07/12/gJQArDhbgW_story.html

  15. The Federal Reserve Bank of New York learned in April 2008, as the financial crisis was brewing, that at least one bank was reporting false interest rates. At the time, a Barclays employee told a New York Fed official that “we know that we’re not posting um, an honest” rate, according to documents released by the regulator on Friday. The employee indicated that other big banks made similarly bogus reports, saying that the British institution wanted to “fit in with the rest of the crowd.” Although the New York Fed conferred with Britain and American regulators about the problems and recommended reforms, it failed to stop the illegal activity, which persisted through 2009. British regulators have said that they did not have explicit proof then of wrongdoing by banks. But the Fed’s documents, which were released at the request of lawmakers, appear to undermine those claims. The revelations fuel concerns that regulators are ill-equipped to police big banks and that financial institutions can game the system for their own purposes. Even after authorities have beefed up oversight and lawmakers have enacted new rules, blowups on Wall Street continue to occur with some regularity. Amid the rate-manipulation scandal, regulators are also dealing with the fallout from the multibillion-dollar trading losses at JP Morgan Chase and the collapse of a second brokerage firm, just months after the failure of MF Global. “I wish I could say I’m shocked, because it is shocking,” said Frank Partnoy, the George E. Barrett professor of law and finance at the University of San Diego School of Law. “But regulators have not been particularly effective or aggressive in the past two decades of finance” (…..)

    http://dealbook.nytimes.com/2012/07/13/barclays-informed-new-york-fed-of-problems-with-libor-in-2007/

  16. As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal. The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said. The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars. Authorities around the globe are examining whether financial firms manipulated interest rates before and after the financial crisis to improve their profits and deflect scrutiny about their health. Investigators in Washington and London sent a warning shot to the industry last month, striking a $450 million settlement with Barclays in a rate-rigging case. The deal does not shield Barclays employees from criminal prosecution. The multiyear investigation has ensnared more than 10 big banks in the United States and abroad. With the prospects of criminal action, several firms, including at least two European institutions, are scrambling to arrange deals, according to lawyers close to the case. In part, they are trying to avoid the public outcry that stemmed from the Barclays case, which prompted the resignation of top executives. The criminal and civil investigations have focused on how banks set the London interbank offered rate, known as Libor. The benchmark, a measure of how much banks charge one another for loans, is used to determine the borrowing costs for trillions of dollars of financial products, including mortgages, credit cards and student loans. Cities, states and municipal agencies also are examining whether they suffered losses from the rate manipulation, and some have filed suits. With civil actions, regulators can impose fines and force banks to overhaul their internal controls. But the Justice Department would wield an even more potent threat by bringing criminal fraud cases against traders and other employees. If found guilty, they could face jail time (…..)

    http://dealbook.nytimes.com/2012/07/14/u-s-is-building-criminal-cases-in-rate-fixing/

  17. Professor Uziel Nogueira says: Barclays may end up delivering the reelection of Obama. The remaining months of the year are NOT looking favorable to bankers. The way things go, Wall Street and the City of London will look back and remember Queen Elizabeth’s famous speech ” 1992 (2012) is not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an ‘Annus Horribilis’. The bad omen for Wall Street: a. risk taking and market manipulation is still rampant in the industry. Bad practices are still part of their culture; b. millions of employed/unemployed taxpayers are fed up with the 1% rich bankers; c. more importantly, a crucial presidential election is under way in the US. Obama will do whatever it takes to be reelected.


    Prosecuting bankers and sending some to jail is God’s gift in an election year. A sure shot at the reelection. Terrible year for bankers and a bad omen for a millionaire seeking the presidency.

    http://dealbook.nytimes.com/2012/07/14/u-s-is-building-criminal-cases-in-rate-fixing/

  18. Professor Uziel Nogueira says:


    Why do banks are in control in China and not in the US? Because China has not instituted US-type of election, perhaps?

    http://dealbook.nytimes.com/2012/07/14/u-s-is-building-criminal-cases-in-rate-fixing/

  19. The Barclays executive at the centre of the Libor interest rate-fixing scandal last night said he had only passed on “instructions” from a conversation he had with his then boss Bob Diamond. In potentially explosive testimony to the Treasury Select Committee, Jerry del Missier, who quit last week as chief operating officer along with the Barclays chief executive, Mr Diamond, said: “He (Mr Diamond) said he had had a conversation with Mr (Paul) Tucker at the Bank of England. (He said) the Bank of England was getting pressure from Whitehall about the health of Barclays and that we should get our Libor rates down. That we shouldn’t be outliers.” Mr Del Missier’s testimony appears to contradict Mr Diamond, who told MPs there was no instruction from the Bank and that he did not intend to relay one. Mr Del Missier said: “I passed the instruction as I had received it on to the money markets desk. I relayed the contents of the conversation I had had with Mr Diamond and expected the Bank of England’s views would be incorporated into Libor submissions.” Challenged on the point he said: “It was an instruction, yes.” He also said he “did not know” why Mr Diamond sent him a note recording the conversation between himself and Mr Tucker, the Bank’s deputy governor, after they had talked about it. Mr Del Missier passed the instructions down to Mark Dearlove, the head of Barclays’ money markets desk. He then made Barclays compliance department aware of it, but they did not contact Mr Del Missier. “The circle was not closed,” Mr Del Missier admitted. He insisted he did not consider what he did with the instruction to be improper despite MPs pointing out that the US Department of Justice considered it to be illegal. Mr Del Missier was repeatedly challenged on how he wasn’t made aware of what appeared to be “standard practice” among Barclays traders, who regulators found had for several years been trying to manipulate Libor rates. Barclays paid fines of £290m as a result. Labour’s Pat McFadden, highlighted numerous occasions where the bank had “lowballed” Libor submissions and accused it of being “up to its eyeballs in dishonesty”. He suggested Mr DelMissier was trying to “blame someone else” for what was going on. But Mr DelMissier said: “To the extent that it was or wasn’t going on I was not aware. Clearly it was a failure of control. It’s regrettable” (…..)

    http://www.independent.co.uk/news/business/news/bob-did-tell-me-to-fix-the-rate-says-diamonds-righthand-man-7946953.html

  20. Even as lawmakers in London hammered a top Barclays executive over the bank’s role in a rate-rigging scandal, another financial firm that is largely owned by the British government is fighting an investigation into the vast scheme. The Royal Bank of Scotland, one of more than 10 banks under scrutiny from authorities around the globe, is refusing to turn over crucial information to Canadian regulators, court documents from Ottawa show. The bank, in which the British government holds an 82 percent stake, is an unlikely foe. British lawmakers have taken the lead in publicly shaming executives and regulators who failed to curb interest rate manipulation before and after the 2008 financial crisis. And the pushback comes in contrast to the more conciliatory approach of several institutions ensnared by the global investigation. Barclays, which last month agreed to pay $450 million to British and American authorities for improperly influencing interest rates, cooperated with the multiyear case, although it too dragged its heels on producing documents at first. Some European banks are now scrambling to strike deals with authorities, according to lawyers close to the case. The Canadian court documents, collected over the last year, hinted that two other big banks were aiding authorities. Those banks are UBS and Citigroup, according to people close to the matter. Many banks are trying to avoid the fallout that has hit Barclays, which has prompted the resignation of two top executives. On Monday, British politicians took aim at one of the Barclays executives, Jerry del Missier, the bank’s former chief operating officer. Barclays was “up to its armpits in dishonest activity,” said Pat McFadden, a British politician who sits on the committee overseeing the testimony. The Royal Bank of Scotland said on Monday that it was “cooperating with regulators in their investigations.” But in the court documents, the bank said it was unable to share certain information with Canada’s Competition Bureau because of British law. Further, the bank said that sharing the documents would amount to an “unreasonable search and seizure” and violate its “privilege against self-incrimination.” “We want to cooperate with the C.C.B. and have proposed ways to do that which allow us to comply with our English legal obligations,” the bank said in the statement. The Canadian investigation spans from 2007 to mid-2010, and encompasses traders at JPMorgan Chase, UBS, Citibank, HSBC, Deutsche Bank and the Royal Bank of Scotland. UBS, the big Swiss bank, is a central target in the broader investigation (…..)

    http://dealbook.nytimes.com/2012/07/16/royal-bank-of-scotland-fighting-bid-for-data-in-libor-case/

  21. (…..) Sir Mervyn conceded yesterday that there would have to be international input into the process of reforming Libor – also known as the London interbank offered rate – whose legitimacy as a benchmark for global financial markets was undermined by revelations that it was manipulated for years by traders at Barclays and potentially other banks. The issue will be on the agenda at the next bi-monthly meeting of global central bankers in Basel, Switzerland, in September. In a letter to his fellow central bankers, Sir Mervyn told them it is “very clear that radical reforms of the Libor system are needed”. Wheatley’s review was announced by Chancellor George Osborne after Barclays was fined £290m for submitting fake borrowing rates that influenced the calculation of Libor. Its terms of reference are still being drawn up.


    Meanwhile, other banks are still under investigation over potential manipulation of Libor and a similar rate, Euribor.

    Bank of America, the US financial giant, yesterday became the latest bank to say it had received requests for information for regulators. It was reported last night that Crédit Agricole , HSBC, Deutsche Bank and Société Générale have become the main focus of regulators’ inquiries. Goldman Sachs chief executive Lloyd Blankfein, speaking at the Economic Club of Washington, said the Libor scandal was another blow to the integrity of the financial system, which he said “has already been undermined so substantially… There was this huge hole to dig out of in terms of getting the trust back, and now it’s just that much deeper. That’s going to be a big burden for all of us.” Mark Carney, the governor of the Bank of Canada, said that the Basel meeting of central bankers could examine not just how Libor is calculated, but whether regulators should push to end its central role in the financial markets entirely. “In terms of the alternatives, there is an attraction to moving to more, obviously, market-based rates if possible and that may be different in different jurisdictions,” he said. “I don’t want to prescribe – it’s very early days – but we may end up with different types of rates used in different currencies and that’s why this should be as co-ordinated as possible internationally.”


    The European Central Bank has also joined the fray. It is putting pressure on the organiser of Euribor, a parallel benchmark interest rate also manipulated by Barclays, to introduce its own overhaul.

    ECB officials have suggested shifting the basis of the calculation to actual market lending rates instead of the current system which, like Libor’s, uses banks’ assessments of what they expect to be charged to borrow money. Regulators fear the existing set-up allows too much discretion.

    http://www.independent.co.uk/news/business/news/britain-cannot–be-trusted-to-reform-libor-by-itself-warns-us-treasury-7957015.html

  22. Yanis Varoufakis: (…..) In summary, borrowing costs in the Eurozone have lost their two anchors: the inter-bank lending rate (courtesy of the sad reality that the banks no longer lend one another) and the overnight ECB interest rate (which banks ignore when lending). The key to understanding this breakdown is governor Noyer’s phrase “the interest rate facing individual private banks depends on the funding costs of the state where they are domiciled and not on the ECB overnight interest rate”. In short, the fear of a disintegration of the Eurozone (that is aided and abetted by silly talk of Greece’s and Portugal’s expulsion) has broken the umbilical cord that normally connects the ECB’s overnight rate with actual borrowing costs of the private sector. Now, the later reflect the fear that the member-state in which the firm or the household are will not be able to refinance itself. In a never-ending circle this fear ensures that the said member-state will not be able to refinance itself and, crucially, guarantees the ECB’s failure to lower interest rates even when it pushes its official rates to zero. This is what a monetary union on the verge of collapse looks like.

    http://www.economonitor.com/blog/2012/07/yanis-varoufakis-it-is-now-official-the-eurozones-monetary-transmission-system-is-broken/

  23. (…..) With a rotten financial system once again laid bare to the world, the only question remaining is whether Wall Street has so many friends in Washington that meaningful reform is impossible. Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits. Going forward, the rules would be changed so that Libor is calculated on actual borrowing costs, not estimated or claimed costs. And enforcement agencies would have the resources they need to launch investigations, to fight the armies of private lawyers the banks hire and to prosecute the law-breakers. But the heart of accountability lies deeper. It rests on acknowledging that we cannot trust Wall Street to regulate itself — not in New York, London or anywhere else. The club is corrupt. When Mitt Romney says he will move to repeal all of the new financial regulations, he supports a corrupt system. When members of Congress grill regulators for being too tough on Wall Street and slash the budgets of the regulators charged with overseeing Wall Street, they prop up a corrupt system. Financial services are critical to the economy. That’s why everyone — every family and every business — has a stake in an honest system.


    The fantasy that reducing oversight of the biggest banks will make us safer is just that — a dangerous fantasy. The Libor fraud exposes rot at the core. Now, who will stand up to fix it?

    http://www.washingtonpost.com/opinions/elizabeth-warren-libor-fraud-exposes-a-rotten-financial-system/2012/07/19/gJQAvDnDwW_story.html?wpisrc=nl_opinions

  24. (Holy Sh… it keeps coming – Financial Scandal Scorecard) Is it my imagination, or does every week bring news of another financial scandal? No, it’s not my imagination. First up: Peregrine Financial Group. This long-running fraud, which has apparently been going on almost as long as the Bernard Madoff Ponzi scheme, came to light when the firm’s founder and longtime chief executive, Russell Wasendorf Sr., tried to commit suicide a few weeks ago. (He failed.) Helpfully, he left a lengthy note that laid out what he had done. Peregrine, you see, is a commodities broker, and Wasendorf had been stealing the money that customers had on deposit with the firm. As you’ll no doubt recall from the very similar MF Global scandal, where $1.6 billion in supposedly segregated customer funds went missing as the firm careened toward bankruptcy, this is supposed to be the sin of sins for a commodities brokerage. Sinful it may be, but not all that difficult, it would appear. Peregrine, which is based in Cedar Falls, Iowa, didn’t operate on the kind of scale as MF Global. But what it lacked in heft, it more than made up for in imagination. In his note, Wasendorf said that, over the years, he had used the money, among other things, to build the company’s $18 million headquarters and to “pay Fines and Fees charged by the regulators.” At the point at which the fraud was discovered, the firm was supposed to have more than $200 million on deposit for customers. Instead, it had $5 million. And where were the regulators? Fooling them was child’s play, he said in his note. Or words to that effect. Next up: HSBC. Who knew that the British bank was the favored institution of money launderers everywhere? As it turns out, the Senate Permanent Investigations Subcommittee knew. This week, it released a 335-page report and held a scorching daylong hearing, excoriating a half-dozen of the bank’s executives (…..)

    http://www.nytimes.com/2012/07/21/opinion/nocera-financial-scandal-scorecard.html

  25. Professor Uziel Nogueira says: It doesn’t matter from which angle you look at the US economy and its financial system, the conclusion is always the same: the banking system is still non functional and will take a long time to be fixed, if ever. Wall Street sets the rules and play their own money game. Ergo, the US economy cannot and will not recover its vitality until the financial question is definitively resolved. Ominously for the American people, the political system –responsible for reforming the banking sector — is part of the problem and not the solution. Washington political class cannot survive without big bank’s donations. If the status quo persists, the end result is not difficult to predict. Economic decline will accelerate in the next few years.


    This question should take the front stage of the presidential political debate. However, it will not. It is too big to be discussed by Obama and Romney.

    http://www.nytimes.com/2012/07/21/opinion/nocera-financial-scandal-scorecard.html

  26. A comment in today’s Financial Times is by a former Morgan Stanley trader, Douglas Keenan, confirms a passing comment in the Economist, that Libor manipulation goes back for more than 15 years. In fact, this piece makes it clear that is the time frame exceeds 20 years. From the Financial Times: (…..)

    http://www.economonitor.com/blog/2012/07/libor-manipulation-well-known-in-london-by-1991/

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