Barclays scandal sends shockwaves worldwide

2012/07/09

THE Barclays rate-rigging scandal is sending shockwaves through world finance, putting ethics andregulation under scrutiny, and raising the prospect of criminal charges in a sector-wide global probe. Britain'sSerious Fraud Office said on Friday it will investigate the interbank rate manipulation scandal which hasengulfed Barclays, forced three top resignations, tainted the City of London and sparked a political firestorm.Barclays was fined STG290 million (RM1.4 billion) by British and US regulators just over one week ago, forattempted manipulation of Libor and Euribor interbank interest rates between 2005 and 2009. Barclaysbecame the first bank to be fined as part of a global probe into suspected manipulation of the twin interestrates that are crucial to the operation of short-term financing and global markets. British lawmakers voted onThursday to hold a parliamentary investigation into the scandal, instead of a full judicial inquiry. "This is amulti-bank issue - albeit evidence and fines for other culpable banks will probably dribble out over a period ofmany months or years," said Ian Gordon, banking sector analyst at Investec. "In broad terms, the issue itselfand the associated fallout are damaging for the financial sector, both in reputational terms, the costs ofinvestigation and fines - and any potential redress. "Moreover, the issue helps to distract from and hencedamage any initiatives to increase the flow of lending to the economy, with obvious negative consequences,"Gordon said. BNP Paribas analysts agreed that the crisis had the potential to engulf other lenders. Libor(London Interbank Offered Rate) is a flagship instrument used all over the world, affecting what banks,businesses and individuals pay to borrow money. Euribor is the eurozone equivalent. The Libor rate iscalculated daily by data provider Thomson Reuters, on behalf of industry body the British Bankers'Association, using estimates from banks of their own interbank rates. Euribor is provided by theBrussels-based European Banking Federation, using data from 43 international banks. Barclays has admittedthat its traders had routinely submitted false readings, as they attempted to benefit their own lucrativederivatives deals. The lender also posted lower Libor values from 2008 to prevent speculation that it willrequire a government bailout such as rival groups Lloyds and the Royal Bank of Scotland. "Barclaysattempted to manipulate and made false reports concerning two global benchmark interest rates, Libor andEuribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as earlyas 2005," the Commodity Futures Trading Commission said on June 27. AFP

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