WASHINGTON (CN) – Barclays Bank will pay $452 million in penalties to various agencies after admitting that it tried to manipulate interbank lending rates through false submissions.
Bob Diamond, the bank’s chief executive, apologized in a statement and said that he and the three other members of the bank’s executive committee would forgo their annual bonuses as an act of “collective responsibility” for the attempted manipulation amid the ongoing financial crisis.
The London Interbank Offered Rate and the European Interbank Offered Rate, or Libor and Euribor, are based on the interest rates leading banks charge when loaning money to other banks overnight. That rate is supposed to represent the cost of a bank’s lending activities.
Barclay’s settlement will be split between the Commodity Futures Trading Commission, the Department of Justice and the U.K.’s Financial Services Authority.
The CFTC says that Libor trades accounted for nearly a billion dollars worth of activity on U.S. exchanges in 2011. More than $220 trillion in derivatives were indexed to the Euribor during the same period, according to the Bank for International Settlements.
Barclays admits that it submitted artificially low rates to the British Banker’s Association, which publishes Libor to hide rising loan costs and to benefit derivatives positions its traders took based on the benchmark rates.
The CFTC’s settlement order with Barclays recounts several requests sent from swaps traders to “submitters,” Barclays employees who submit the bank’s daily Libors and Euribors. One states: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”
Such requests occurred nearly daily, and submitters often responded with messages such as “always happy to help,” “for you, anything,” or “Done … for you big boy,” the CFTC said.
Barclays traders also reached beyond their fellow employees, asking traders at other banks on the Libor and Euribor panels to make submission requests favorable to their trading positions, the Justice Department said in its settlement agreement.
In addition to its traders, Barclays senior management pressured submitters to keep their submissions in line with other banks. In a typically British turn of phrase, managers told submitters not to put their “heads above the parapet,” according to the CFTC order.
While many Barclays submitters acquiesced readily to the requests of traders and demands of management, others had more scruples.
Barclay’s senior dollar submitter objected to the artificially lower rates and told his supervisor in October 2008: “Following on from my conversation with you I will reluctantly, gradually and artificially get my libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices,” according the CFTC order.
Both the Justice Department and the CFTC stressed that Barclays cooperated fully with their investigations. So long as it complies with the settlement agreement, Barclays will not face criminal prosecution for rate manipulation.
The CFTC order requires the bank to create a firewall between submitters and traders, make submissions reflecting its true lending costs, and retain records justifying the submissions.