Scandal at Barclays bank

There has been more embarrassment for the banking sector, yesterday Barclays was found guilty of trying to change lending rates to suit its business. The bank was fined £290 million pounds by British and American regulators.

United States Commodity Futures Trading Commission – “as a result of instructions from Barclays’ senior management, the Bank routinely made artificially low LIBOR submissions to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.”

The reason why Barclays was fined so heavily is that by illegally changing the interest rate, it determined how much money Barclays could make or limit how much it could lose. The London Interbank Offered Rate, or LIBOR (despite the name, it is global), governs what is known as derivatives, which is a major international market worth 100s of trillions of pounds, more than global GDP! There were huge incentives for Barclays to fix the rate but in doing so they changed the rates of interest people paid on their mortgages and other loans. This has caused widespread anger amongst the political scene, Lord Oakeshott of the Liberal Democrats has called for the CEO of Barclays, Bob Diamond, to resign or be sacked, and he was joined in this by many Conservative and Labour MPs.

Unfortunately it looks like Barclays won’t be the only bank facing sanctions, Royal Bank of Scotland, the Swiss bank UBS, Germany bank Deutsch bank and the American Citi Group are all thought to have tried to change the LIBOR. The fear in government is that this scandal will seriously damage the City’s reputation for good banking, it is has been less than five years since bad loans caused the recession and this will kill off any reputation the banking sector had left.

Banking has to change as we know it or more scandals like this one and more recessions, like the one we are currently in, will keep occurring again and again. Change has to come before the public will begin to trust their banks.