Olivia Harris / Reuters
A man walks past a branch of Barclays Bank in London. The rate-fixing scandal that has rocked the bank could soon wash up on American shores.
By Roland Jones
The rate-rigging scandal that claimed the career of Barclays Bank Chairman Marcus Agius Monday may appear confined to the United Kingdom, but it has implications for this side of the Atlantic too.
Agius resigned Monday, less than one week after the British bank agreed to pay $453 million in fines to the U.S. Justice Department and the U.K.?s Financial Services Authority over charges it manipulated a short-term interest rate that is used to set the rates for all sorts of consumer bank loans, from mortgages to credit cards.
?This is very serious,? Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, told CNBC Monday. He noted that the rate is used as a ?wholesale? rate between the largest and most sophisticated banks in the world. The rest of us have to pay a ?retail? rate on top of it.
?Barclays tried to 'rig the market' on its behalf," Gensler said, adding that the issue is likely to touch American pocketbooks, as there are many Americans with credit cards, mortgages and tens of thousands of small businesses who rely on ?honest benchmark rates.?
Much of the initial fallout from the LIBOR scandal has taken place in the U.K., but the scandal could soon spread overseas.
Barclays is one of a handful of international banks under investigation for rate-rigging misconduct and the first to reach a settlement with regulators. The bank has agreed to help U.S. investigators?find?other wrongdoing inside its own bank, and also at rival institutions -- potentially divulging collusion on rate-rigging among banks across the globe.
Other banks that have disclosed that they are under investigation for LIBOR manipulation include big U.S. banks, such as Citigroup and JPMorgan Chase, and also HSBC, Deutsche Bank and the Royal Bank of Scotland, according to The Wall Street Journal.
Fourteen Barclays traders based in London and New York who were at the center of the rate-fixing scandal are under?investigation by the FBI, the U.K.?s Sunday Times newspaper reported this weekend.
?LIBOR,? or the ?London Interbank Offered Rate,? may include the word London, but it is a global rate for some $360 trillion worth of financial products worldwide, such as loans, derivatives, mortgages and bonds.
The rate-fixing scandal is significant because it means Barclays -- and potentially several other banks under investigation -- has manipulated a market that affects borrowing costs on both sides of the Atlantic, meaning that borrowing costs might have been too high or too low for businesses and consumers.
Banks use LIBOR rates when they lend to one another using short term loans. During the financial crisis in 2008, LIBOR rates shot up when nervous banks stopped lending to each other, and LIBOR became one of the most closely-watched indicators of confidence in the financial system. Barclays is accused of rigging it at an artificially low rate to improve perceptions of its financial strength and then using the distorted rate to make trading profits for the bank.
Shareholders and British politicians are among those calling for Barclays CEO Bob Diamond to resign from his position. Both Agius and Diamond face the possibly of criminal charges in the U.K., and they?re both due to appear before the Treasury Select Committee in the U.K.?s Parliament this week to answer questions about the LIBOR scandal.
Roy C. Smith, a professor of finance at New York University?s Stern School of Business, noted that Diamond is unlikely to enjoy the same fate as his?fellow banking CEO Jamie Dimon of JPMorgan, who recently survived two rounds of questioning on Capitol Hill after announcing that his bank had suffered a multi-billion loss on a complex derivatives trade in the second quarter of this year.
?This is different,? Smith said. ?To what degree was the conduct corrupt? That?s what Dimon isn?t facing, but Diamond is.?
Smith also noted that the LIBOR scandal has enraged the U.K. public, now feeling the squeeze of austerity measures after being hit hard by the 2008 financial crisis. The British public has a much lower tolerance for bank misconduct than the U.S. public, he said.
?A bank?s board can only defend you to the death for a short time,? Smith said. ?After that, the board will say it?s you or us, and so they?ll undercut you. Boards tends to get very skittish when their reputation is at risk.?
He pointed to the departure of the Chief Executive of UBS Oswald Gruber after the bank lost $2.3 billion as a result of unauthorized deals at the Swiss bank by ?rogue trader? Kweku Adoboli.
Diamond?s apology and his announcement that he will forgo his bonus for the year likely won?t be enough to assuage the anger of the British public, Smith said.
?My guess is Diamond has a harder job hanging on to his job than he thinks,? he said.
Discussing the resignation of Marcus Agius of Barclays with the CFTC's Gary Gensler.
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