Libor Reported as Rigged in ’08 Proving 2012’s Revelation. Barclays Plc’s admission that it rigged the London interbank offered rate shows regulators, central bankers and politicians weren’t paying attention when everyone from Citigroup Inc. to the Bank for International Settlements indicated that the measure was being manipulated. The BIS signaled in March 2008 that the benchmark was being misstated. A month later, analysts at Citigroup suggested the same. In May of that year, one of Barclays’s own strategists said the numbers reported by banks “were a lie.” Barclays’s acknowledgement that it submitted false rates during the height of the credit crisis cost Chief Executive Officer Robert Diamond and other top managers their jobs and cut the bank’s market value by about 4.4 billion pounds ($6.9 billion).
In the U.K. and abroad, at least a dozen banks are being investigated for manipulating Libor. Deficient Oversight Fed Ignored Libor is derived from a survey of London banks conducted each day by Thomson Reuters Corp. Subprime Collapse BIS Report. LIBOR-Fix.
Satyajit Das: The LIBOR Fix – Part 1. Yves here. This post includes some details on the background of the Libor scandal that were new to me and I believe readers will find informative. By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011). Jointly posted with roubini.com The scandal surrounding the manipulation of LIBOR sets raises a number of issues. Fix… Depending on context, the word “fix” can mean “set” or “determine”, “manipulate” or “rig” as well as “repair” or “correct”. An objective mechanism is needed to set money markets rates used in a variety of instruments. In a Fix… In June 2012, UK and American authorities fined UK’s Barclays Banks £290 million (US$450 million) for manipulating key money market benchmark rates, such as the London Interbank Offered Rate (“LIBOR”) and Euro Interbank Offered rates (“EuroIBOR”). The settlement follows a lengthy investigation into fixing money market rates by regulators, under way for at least 2 or more years.
Satyjit Das: The LIBOR Fix – Part II. By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk and Traders Guns and Money. Jointly posted with roubini.com The scandal surrounding the manipulation of LIBOR sets raises a number of issues. The first part of this two part piece set out the known facts. In the second part, the broader implications of the episode are discussed. The Long Fix … Lord Turner, the head of UK FSA, told a UK parliamentary Committee that it hadn’t occurred to him before 2009 that the rate was something that could be manipulated.
Barclays’ senior management and board of directors have indicated that became aware of the problem recently. The practice appears blatant and warnings were ignored. In a Singapore lawsuit against RBS for wrongful dismissal, a trader Tan Chi Min alleged that he and colleagues were regularly consulted by senior managers and personnel responsible for setting the bank’s Yen LIBOR. TBTF to TBTJ… Big Fix… Fixing the Fix… 1. 2. 3. Yes, Virginia, the Real Action in the Libor Scandal Was in the Derivatives. As the Libor scandal has given an outlet for long-simmering anger against wanker bankers in the UK, there have been some efforts in the media to puzzle out who might have won or lost from the manipulations, as well as arguments that they were as “victimless” or helped people (as in reporting an artificially low Libor during the crisis led to lower interest rate resets on adjustable rate loans pegged to Libor; what’s not to like about that?)
What we have so far is a lot of drunk under the streetlight behavior: people trying to relate the scandal to the part that is most visible and easy to understand, meaning the loan market that keys off Libor. As much as that’s a really big number ($10 trillion), it is trivial compared to the relevant derivatives. From the FSA letter to Barclays: The Eurodollar futures contract traded on the CME in Chicago (which is the largest interest rate futures contract by volume in the world) has US dollar LIBOR as its reference rate.
But how could this be? Wall Street Bank Investors in Dark on Libor Liability. Barclays Plc (BARC) investors, blindsided by the bank’s $451.4 million regulatory fine for trying to rig benchmark rates, saw the stock drop 16 percent a day later. Other bank shareholders may be just as surprised. Barclays, like other lenders that help set key rates for $360 trillion in securities, has given investors scant guidance on the liability they face for alleged market manipulation. More than a dozen banks are being probed by U.S., Asian and European regulators for collusion in setting interbank lending rates. The others have mirrored Barclays on minimal disclosure. “The automatic reaction from investors is: ‘Who’s next?’” Bank of America Corp., Citigroup Inc. “I believe that Barclays had previously reserved for only about one-third of their ultimate liability” in regulatory fines, Charles Peabody, a banking analyst at New York-based Portales Partners LLC, said in an e-mail.
Biggest Banks People walk by the New York Stock Exchange in New York, on June 15, 2012. Close Open. London Banker: Lies, Damn Lies and LIBOR. 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. Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole.
If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable. We have allowed markets to evolve in ways that make supervision of markets almost impossible. The LIBOR affair: Banksters. Another Domino Falls in the LIBOR Banking Scam: Royal Bank of Scotland | Matt Taibbi. LIBOR Scandal: The Smoking Gun Showing The Authorities Knew. The Big Losers in the Libor Rate Manipulation. Orders Barclays to pay $200 Million Penalty for Attempted Manipulation of and False Reporting concerning LIBOR and Euribor Benchmark Interest Rates. Barclays Corrupts Libor and Maybe a Lot More. If Barclays Plc would lie about its borrowing costs, what else would it lie about?
That question gets to the heart of the damage Barclays did to itself by submitting false numbers for years to the British Bankers’ Association as part of the surveys used to set the London interbank offered rate, the benchmark for $360 trillion of financial instruments globally. The most important asset any bank has is trust -- especially when it comes to the figures on its own financial statements.
Whatever credibility Barclays had, it’s been poured down the drain like last night’s suds. Diamond, who resigned July 3, replied: “Of course.” His terse response came off as less than credible. Trust Deficit The trust deficit is evident in Barclays’s market value. Barclays showed 7.8 billion pounds of intangibles as of Dec. 31 -- things like goodwill and customer lists -- as well as 3 billion pounds of deferred tax assets.
It must do more. Gaffe Effect Enforcing the law may be destabilizing at times.
Settlements between Banks & regulators. Scope for criminal prosecutions? Libor rigging - Banks involved. Mervyn King tells banks: you can't go on like this | Business. Sir Mervyn King, the governor of the Bank of England, piled the pressure on the City on Friday when he said something had gone "very wrong" with Britain's banks that needed to be put right. As Barclays and other high street banks became embroiled in a new mis-selling scandal, King launched his most scathing attack yet on the culture of banking in the five-year-long financial crisis. King refused to say Bob Diamond was a "fit and proper" person to run Barclays as the reputational damage from an interest rate-fixing fine led to another fall in the bank's shares. More than £4bn has been wiped off the value of the bank since the rate-fixing scandal emerged.
"It is time to do something about the banking system," King said. As he warned that the outlook for financial stability had deteriorated as a result of the eurozone crisis, he dismissed mounting calls for a Leveson-style investigation into banks, saying that enough was already known to implement root and branch reform of the City. Let's end this rotten culture that only rewards rogues | Will Hutton | Comment is free | The Observer. Investment banking is an organised scam masquerading as a business. It is defined by endemic conflicts of interest, systemic amoral behaviour and extreme avarice.
Many of its senior figures should be serving prison sentences or disgraced – and would have been if British regulators had been weaned off the doctrine of " light touch" regulation earlier and if the Serious Fraud Office's budget had not been emasculated by Mr Osborne. It is a tax on wealth generation and an enemy of honest endeavour – the beast that is devouring British capitalism. The £290m fine on Barclays for rigging the interest rates in the inter-bank market is a defining moment. Not just for Barclays but for every bank with which it colluded. In the light of what we now know, that seems laughable. As the FSA reports, senior treasurers and the corporate affairs department were both keenly aware of those risks and anxious they should be averted.
This came easily because the practice had become habitual. Massive Furor in UK Over Libor Manipulation; Where’s the Outrage Here? In case it isn’t yet apparent to you, the unfolding scandal over manipulation of Libor and its Euro counterpart Euribor is a huge deal. Even though at this point, only Barclays, the UK bank that was first to settle, is in the hot lights, at least 16 other major financial players, which means pretty much everybody, is implicated. First, Libor is the basis for pricing over $10 trillion of loans. As the CTFC noted: US dollar Libor is the basis for the settlement of the three-month Eurodollar futures contract traded on the Chicago Mercantile Exchange, which had a traded volume in 2011 with a notional value exceeding $564 trillion.
The Wall Street Journal puts total in contracts affected at $800 trillion. Second is that price fixing is a criminal violation under the Sherman antitrust act. This is Diamond’s defense explanation of the 2005-2007 Libor manipulation: Barclays traders attempted to influence the bank’s submissions in order to try to benefit their own desks’ trading position. Banker to the Bankers Knows the Numbers Are Lying. The Bank for International Settlements, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them.
What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies. “The financial sector needs to recognize losses and recapitalize,” the Basel, Switzerland-based institution said in its latest annual report, released this week. “As we have urged in previous reports, banks must adjust balance sheets to accurately reflect the value of assets.” The implication is that many banks are showing inaccurate numbers now. Unfortunately the BIS’s suggested approach is almost all carrot and no stick. “The challenge is to provide incentives for banks and other credit suppliers to recognize losses fully and write down debt,” the report said. So there you have it. No Change In this respect, little has changed since the near-meltdown of 2008, especially in Europe. Propping Up. A Huge Break in the LIBOR Banking Investigation | Matt Taibbi.
After Barclays, other banks are in our sights over interest rates, warns FSA | Business. The FSA's headquarters. After imposing a record fine on Barclays, the regulator's investigations are continuing. Photograph: Sean Potter/Alamy The Financial Services Authority has warned the banking industry that the record-breaking £59.5m fine levied on Barclays for attempting to manipulate interest rates might not be the last as an international investigation into the activities of other banks is being continued. Tracey McDermott, acting director of enforcement and financial crime at the City regulator, said that a "number of other significant cross-border investigations in this area" were under way involving other banks. "The action against Barclays should leave firms in no doubt about the serious consequences of this type of failure," she said. The bailed-out banks Lloyds Banking Group and Royal Bank of Scotland are among those co-operating with the authorities.
The benchmarks referred to are the London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor). Libor Probe Expands to Bank Traders. Manipulation And Abuse Confirmed In $350 Trillion Market. LIBOR manipulation? Done for you, Big Boy.