Barclays Libor scandal: Fraud revealed in the UK banking system

Bob Diamond, the chief executive of Barclays may have to resign Photo: Reuters

The Financial Services Authority fined Barclays a record £60m, saying staff at the bank had repeatedly made false submissions to help set the London Interbank Offered Rate (Libor).

The LIBOR is an average rate set by banks each morning that measures how much they're going to charge each other for loans worth more than $450 trillion (£288 trillion) globally. 

That rate, in turn, affects returns on complex products such as interest rate derivatives contracts.

These rates are used by businesses and public authorities every day, and they affect the mortgage payments and loan rates of millions of families and hundreds of thousands of firms, large and small.

Investigators from the FSA and the US Commodity Futures and Trading Commission said they had found evidence that Barclays had tried to manipulate Libor for several years in the run up to the financial crisis and in its aftermath. The U.S. Justice Department said Barclays would not face criminal prosecution, subject to certain conditions, but individual employees or officers could be prosecuted. 

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities. "Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multi-year provisions that could run into the billions," Chen said.

Barclays chief executive Bob Diamond, and three of the bank’s senior managers including finance director Chris Lucas, said they would not take bonuses this year as a result of the regulator’s findings.

But UK’s prime Minister David Cameron says Barclays has "serious questions to answer" over the Libor fixing and Chancellor of the Exchequer George Osborne describes the scandal as a "shocking indictment" of the banks.

Shareholders are calling for Diamond to resign.

UBS shares were down 3.8 percent in afternoon trading, and Citigroup shares were down 0.1 percent. Britain's Financial Services Authority cited evidence that Barclays traders were, in some cases, in touch with people in other banks.

Barclays is not the only bank to run into trouble this month, for the past 10 days, Natwest bank had its services shut down completely to millions of customers due to a server failure.