Barclays Scandal: Libor Essay

2304 Words Jun 25th, 2013 10 Pages
From Amanda Chua, Financial Manager
To Sir David Walker, Chairman of Barclays Plc.
Date 24th February 2013
Subject Implication of The Recent Libor-Fixing Scandal for Barclays Bank

1. Executive Summary
* The London Interbank Offered Rate (Libor) is the average interest rate charged to banks for lending funds in the interbank market (Investopedia n.d.).
* The UK Treasury reported that Libor is responsible for an estimated $300 trillion worth of financial transaction (BBC 2012).
* Barclays’ traders submitted inappropriate rates upon derivative traders request (FSA 2012).
* Barclays’ submitted inappropriate rates to prevent negative media attention (FSA 2012).
* Barclays was fined £290 million for Libor scandal
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Also, interbank borrowings were reduced during the financial crisis causing difficulty in evaluating whether submitted rates were realistic (Wheatley 2012).

4. Consequences for Barclays’ scandal
Manipulating the Libor rate is intolerable and investigation involving the FBI is a reputational damage in itself (R.D. 2012), not only towards Barclays but in the banking sector as a whole where regulators are still speculating which other banks were involved (Bischoff & McGagh 2013).
Barclays received a total of £290 million penalty from FSA, CFTC and DoJ (R.D. 2012) for manipulating the Libor rate.
Furthermore, former Barclays’ chairman, Marcus Agius resigned on July 2nd 2012, followed by Bob Diamond and Jerry Del Missier on July 3rd 2012 as a result for their involvement in the LIBOR scandal (BBC (B) 2013). Similarly, 3700 employees were discharged to reorganize the Barclays banking regime (McGee 2013).
As Libor accounts for $300 trillion worth of financial transaction, this affects many because lenders lose out as the borrowers benefit from the low interest rate charges and people are very disappointed at the extend to where Barclays has went to.
Due to the scandal, Barclays’ share prices fluctuated because the market expected charges for lawsuits against Barclays and it reflected the reputational damage Barclays has…

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