Barclays Bank PLC acknowledged providing false Libor and Euribor submissions that took in to account proprietary trading positions and concerns about the reputation of the health of the bank in reaching an agreement with the Department of Justice to resolve violations arising from Barclays’s submissions. Barclays will pay a $160 million fine to the DOJ and an approximate total fine of $452 arising from the investigation that included the Commodity Futures Trading Commission (CFTC) and the Financial Services Authority (FSA) of London.
Libor (London InterBank Offered Rate) is the average interest rate that leading banks in London charge when lending to other banks and is calculated by the British Banking Association (BBA) based on submitted prices by member banks. It is used as a reference rate for numerous fixed income instruments including Eurodollar futures, interest rate swaps, syndicated loans and variable rate mortgages. Euribor (Euro Interbank Offered Rate) is a similar instrument within the Eurozone. Barclays was and remains a member of the panel of banks that submit rates for the daily calcumation of Libor. The FSA estimates that $554 trillion in interest-rate contracts rely on the Libor system.
The world's larges futures contract, CME Group's three-month eurodollar interest rate future settles based on Libor.
In its filing and settlement of charges against Barclays for attempted manipulation the CFTC stated that Barclays “attempted to manipulate and made false reports concerning both benchmark interest rates to benefit the Bank’s derivatives trading positions by either increasing its profits or minimizing its losses. This conduct occurred regularly and was pervasive.”
The CFTC states that the attempted manipulation dates back to 2005. Its order also found that “the Bank routinely made artificially low LIBOR submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition,” throughout the global financial crisis from August 2007 through early 2009 based on instructions from Barclays’ senior management.
CFTC Chairman Gary Gensler stated, “People taking out small business loans, student loans and mortgages, as well as big companies involved in complex transactions, all rely on the honesty of benchmark rates like LIBOR for the cost of their borrowings. Banks must not attempt to influence LIBOR or other indices based upon concerns about their reputation or the profitability of their trading positions.”
The FSA stated, “Barclays’ misconduct was serious, widespread and extended over a number of years.”
The Justice Department noted in its release that there remains on ongoing criminal investigation into the manipulation of LIBOR and EURIBOR by other financial institutions and individuals.