Libor scandal

The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate), and the investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. Libor underpins approximately $350 trillion in derivatives. It is controlled by the British Bankers' Association (BBA). The banks are supposed to submit the actual interest rates they are paying, or would expect to pay, for borrowing from other banks.

On Thursday, 29 May 2008, The Wall Street Journal (WSJ) released a controversial study suggesting that banks might have understated borrowing costs they reported for Libor during the 2008 credit crunch. This could mislead others about the financial position of these banks. They reported further in March 2011 that regulators were focusing on Bank of America Corp., Citi-group Inc. and UBS AG. The BBA claimed in response that Libor continues to be reliable even in times of financial crisis. other authorities have contradicted the Wall Street Journal article. Other authorities also said there was no evidence of manipulation. In its March 2008 Quarterly Review, The Bank for International Settlements has stated that "available data do not support the hypothesis that contributor banks manipulated their quotes to profit from positions based on fixings." Further, in October 2008 the International Monetary Fund published its regular Global Financial Stability Review which also found that "Although the integrity of the U.S. dollar Libor-fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar Libor remains an accurate measure of a typical creditworthy bank’s marginal cost of unsecured U.S. dollar term funding."

On 28 February 2012, it was revealed that the U.S. Department of Justice was conducting a criminal investigation into Libor abuse. Among the abuses being investigated were the possibility that traders were in direct communication with bankers before the rates were set, thus allowing them an unprecedented amount of insider knowledge into global instruments. One trader's messages indicated that for each basis point (0.01%) that Libor was moved, those involved could net “about a couple of million dollars”.

On 27 June 2012, Barclays Bank was fined $200m by the Commodity Futures Trading Commission, $150m by the United States Department of Justice and £59.5m by the FSA for attempted manipulation of the LIBOR and EURIBOR rates. The United States Department of Justice stated further that "the manipulation of the submissions affected the fixed rate on some occasions".

Barclays manipulated rates for at least two reasons. Routinely, for years, traders sought particular rate submissions to benefit their financial positions. Later, during the 2007–2012 global financial crisis, they artificially lowered rate submissions to make their bank seem healthy.

On 2 July 2012, Marcus Agius resigned from the chairman position following the interest rate rigging scandal. Bob Diamond, the chief executive officer of Barclays, resigned on July 3, 2012. Marcus Agius will fill his post until a replacement is found. Bob Diamond was questioned by the Parliament of the United Kingdom regarding the manipulation. He said he was unaware of the manipulation until that month, but revealed discussions with Paul Tucker, deputy governor of the Bank of England. Tucker then voluntarily appeared to clear his name. He said he had never encouraged manipulation of Libor, and that other self-certification mechanisms like Libor should be reformed.

By July 4, 2012 the breadth of the scandal was evident and became the topic of analysis on news and financial programs that attempted to explain the importance of the scandal. On July 6, it was announced that the U.K. Serious Fraud Office had also opened a criminal investigation into the attempted manipulation of interest rates. The investigation is not limited to Barclays.