28th June 2012
Today I wish to draw your attention to the latest data from the British Bankers Association. And no I do not mean their excuses for the manipulation of the Libor (London Inter Bank Offered Rate) benchmark by Barclays Bank. For those of you unaware of the significance of what took place here let me give you their definition of it:
"bbalibor is the primary benchmark for short term interest rates globally and is used as the basis for settlement of interest rate contracts on many of the world's major futures and options exchanges. It has also been used as a barometer to measure the health of financial money markets and is used in many loan agreements throughout global markets including mortgage agreements."
The system for setting Libor or as it has now become named Liebor has always had a large moral hazard in it. The banks who set it have large trading books which depend at least in part on the interest-rates they submit. What could possibly go wrong? I suspect that a further investigation would discover something worse than what has been revealed so far and that would be collusion between banks. A type of oligopoly would have far more power than one bank out of up to 18. Or if you like cartel alert.
How does the punishment fit the crime?
If you fine Barclays a total of US $453 million the major punishment falls on the shareholders. What exactly have they done wrong as even the most active shareholder was likely to have been unaware of it? Those who should have been punished the traders and Barclays management seem to have escaped virtually scot-free. This keeps happening and is a problem of our times.
I would suggest that this is a job for the Serious Fraud Office except in all my time in the financial world I am struggling to think of anyone of significance they have prosecuted successfully. They seem as much use as the previously much vaunted by some Chinese Walls.
For more analysis from Shaun Richards click here.
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