Libor, the London inter-bank lending
rate, is considered to be one of the most crucial interest rates in finance.
It underpins
trillions of pounds worth of loans and financial contracts.
So, when
Barclays was fined £290m last week after some of its derivatives traders were
found to have attempted to rig this key rate, public confidence in banks was
shattered.
The scandal
has forced Barclays chairman Marcus Agius to resign.
Now,
pressure is mounting against Bob Diamond, the chief executive, to follow suit.
Here are
some of the key dates in the scandal:
2005
As early as
2005 there was evidence Barclays had tried to manipulate dollar Libor and
Euribor (the euro equivalent of Libor) rates at the request of its derivatives
traders and other banks.
Misconduct
was widespread, involving staff in New York, London and Tokyo as well as external
traders.
One Barclays
trader told a trader from another bank in relation to three-month dollar Libor:
"duuuude... what's up with ur guys 34.5 3m fix... tell him to get it
up!"
Between
January 2005 and June 2009, Barclays derivatives traders made a total of 257
requests to fix Libor and Euribor rates, according to a report
by the Financial Services Authority (FSA).
2007
At the onset
of the financial crisis in September 2007 with the collapse of Northern Rock,
liquidity concerns drew public scrutiny towards Libor. Barclays manipulated
Libor submissions to give a healthier picture of the bank's credit quality and
its ability to raise funds. A lower submission would deflect concerns it had
liquidity problems.
Barclays'
Libor submissions were at the higher end of the range of contributing banks,
and prompted media
speculation about the true picture of the bank's risk and credit
profile.
Senior
treasury managers instructed submitters to reduce Libor to avoid negative
publicity, saying Barclays should not "stick its head above the
parapet".
On 28 November, a senior submitter wrote in an
internal email that: "Libors are not reflecting the true cost of
money."
A Barclays
compliance officer contacted the UK banking lobby group British Bankers'
Association (BBA) and the FSA and described "problematic actions" by
other banks, saying they appeared to be understating their Libor submissions.
During the
financial crisis Barclays was in daily contact with the FSA but failed to
discuss its own false submissions, instead commenting about liquidity
generally. It told the regulator its submissions were within a reasonable
range.
In an email
in late December, one submitter expressed his discomfort at the rate
manipulation: "My worry is that [both Barclays and the contributor bank
panel] are being seen to be contributing patently false rates," he said.
"We are
therefore being dishonest by definition and are at risk of damaging our
reputation in the market and with the regulators."
2008
A string
of media reports questioned the integrity of Libor.
Around 16 April, a senior Barclays treasury manager
informed the BBA in a phone call that Barclays had not been reporting
accurately. But he defended the bank, saying it was not the worst offender:
"We're clean, but we're dirty-clean, rather than clean-clean."
"No
one's clean-clean," the BBA representative responded.
Barclays
received communications from the BBA expressing concern about the accuracy of
its Libor submissions. The BBA said if the media reports were true, it was
unacceptable.
On 17 April, a manager made comments in a call to the
FSA that Barclays had been understating its Libor submissions: "We did
stick our head above the parapet last year, got it shot off, and put it back
down again. So, to the extent that, um, the Libors have been understated, are
we guilty of being part of the pack? You could say we are... Um, so I would, I
would sort of express us maybe as not clean clean, but clean in
principle."
On 29 May Barclays agreed internally to tell the
media that the bank had always quoted accurate and fair Libors and had acted
"in defiance of the market" rather than submitting incorrect rates.
On 10 June, the BBA published a consultation paper
seeking comments about proposals to modify Libor. "The BBA proposes to
explore options for avoiding the stigma whilst maintaining transparency,"
it said. Barclays contributed comments but avoided mentioning its own rate
submissions.
On 5 August the BBA published a feedback statement on
its consultation paper, and concluded that the existing process for submissions
would be retained.
In September, following the collapse of Lehman
Brothers, the Bank of England had a conversation with a senior Barclays
official, in which it raised questions about the bank's liquidity position and
its relatively high Libor submissions.
In late October, following the discussion with the Bank of
England, Barclays instructed Libor submitters to lower the rate to be
"within the pack".
On 17 November the BBA issued a draft document about
how Libor rates should be set and required banks to have their rate submission
procedures audited as part of compliance. The final paper would be circulated
on 16 July 2009.
2009
On 2 November the BBA circulated guidelines for all
contributor banks on setting Libor rates in the same manner. Barclays made no
changes to its systems to take account of the BBA guidelines.
In December
Barclays started to improve its systems and controls but ignored the BBA's
guidelines.
Until 2009
the bank did not have a formal Chinese wall between the derivatives team and
the submitters.
2010
In June, Barclays circulated an email to submitters
that set out "fundamental rules" that required them, for example, to
report to compliance any attempts to influence Libor submissions either
externally or internally. It also prohibited communication with external
traders "that could be be seen as an attempt to agree on or impact Libor
levels".
2011
In late
2011, Royal Bank of Scotland sacked at least 10 people for their alleged roles
in the Libor-fixing scandal.
2012
June
On 27 June Barclays admitted
to misconduct. The UK's FSA imposed a £59.5m penalty.
The US Department of Justice and the Commodity
Futures Trading Commission (CFTC) imposed fines worth £102m and £128m
respectively, forcing Barclays to pay a total of around £290m.
One day
later, Barclays' share price plunged 15%.
Chief
executive Bob Diamond said he would attend a Commons Treasury Committee and
that the bank would cooperate with authorities. In a letter to the committee
chairman Andrew Tyrie, he wrote: "Even taking account of the abnormal
market conditions at the height of the financial crisis, and that the
motivation was to protect the bank, not to influence the ultimate rate, I
accept that the decision to lower submissions was wrong." However, he said
he would not resign.
On 29 June Prime Minister David Cameron urged regulators
to use "all the powers at their disposal" to pursue Barclays.
"This is a scandal. It is extremely serious. They've had a very large fine
and quite rightly. But frankly the Barclays management team have some big
questions to answer," he said.
The same
day, Bank of England Governor Sir Mervyn King called for a
"cultural change", adding: "The future calculation of Libor on
'my word is my Libor' is now dead." He said implementing the Vickers
banking reforms was the most important first step, but ruled out a
Leveson-style enquiry into the banks.
July
On 2 July:
- Barclays chairman Marcus Agius resigned and
also tendered his resignation as chairman of the BBA and Mr Diamond said
in a
letter to staff that he would "get to the bottom" of
what happened
- The Serious Fraud Office (SFO) considered
whether to bring criminal charges against bankers who tried to manipulate
the inter-bank lending rate.
- Prime Minister Cameron announced a parliamentary review of the
banking sector, to be headed by the chairman of the Treasury Committee,
Andrew Tyrie. The review should ensure that the UK had the "toughest
and most transparent rules of any major financial sector", Mr Cameron
said.
On 3 July Barclays chief executive Bob Diamond resigned, saying
that the external pressure on the bank risked "damaging the franchise".
