Barclay’s executives “knew of Libor rate fiddling” in 2008


By a Newsnet reporter

A former senior employee of Barclays bank, speaking anonymously to the Independent newspaper, has claimed that the company’s executives must have known in 2008 that its traders were fiddling the inter-bank Libor rate. 

When giving evidence to the Treasury Select Committee in the Westminster Parliament earlier this week, former Barclays chief executive Bob Diamond claimed that he had only been told about the scandal a few days previously.

The whistle-blower added that under Mr Diamond’s management, Barclay’s staff worked in a “culture of fear”, suffering intimidation and even physical threats, on top of long hours which made family life impossible, and lived in terror of the company’s ruthless annual staff appraisals.  

The former senior employee of the company told the newspaper that Barclays had a strict policy of ensuring that any information of concern must be passed up the managerial chain, or ‘escalated’, and that failure to do so would result in dismissal.  In the evidence released so far, there were a number of emails from Barclay’s employees who had refused requests to fix the Libor rate, and had reported the requests to their line-managers.  

The obvious inference is either that these line-managers were themselves implicated in the rate-fixing, and so failed to pass on the information, or that the information was passed up the managerial chain but senior executives took no action.

He said:

“Libor fixing was escalated by several people up to their directors, they would then have escalated it up the line because at Barclays if you don’t escalate, and it is found out that you haven’t, it is grounds for disciplinary action.  You will be dismissed.”

The Serious Fraud Office announced on Friday that it was to launch a criminal inquiry into the Libor rate-fixing, but gave no details about the subjects of its inquiry.  A number of other banks are known to be involved in the scandal, it was reported last week that RBS had sacked a number of its employees after discovering they were involved in Libor rate-fixing.

Barclays and all of Britain’s other leading banks are now facing legal claims in the US from investors in Libor-related investments.  The banks could potentially face paying out billions in damages.  Fears have also been raised that international investors will no longer trust the City of London as an honest broker, and that the fall-out from the Libor rate-fixing could cause long-term damage to the UK’s financial sector.

As the political mud-slinging over responsibility for the scandal deepened, the City watchog the Financial Services Authority (FSA) disclosed that it had warned the Coalition Government nearly two years ago that Libor needed to be better regulated, but no action was taken. 

The FSA reported failings in the Libor system to the Treasury and told Whitehall that Libor was in urgent need of monitoring by either the FSA or the Bank of England.  The news comes as the Government has just ordered a fresh investigation into Libor by the FSA.  Insiders claim that this new report will simply go over the same ground as the earlier report, which was ignored.

The fact that the Coalition appears to have ignored the FSA’s recommendations leaves it open to accusations of piloting a major piece of financial legislation that disregards clear failings in City practice.  Yet this is exactly what the Coalition criticised the previous Labour government for doing.

In 2008, when Labour was in power, former Barclays Capital head Naguib Kheraj was recruited to the FSA as a regulatory advisor after the collapse of Northern Rock.  Barclays Capital was the section that was responsible for the alleged rigging of the Libor rate between 2005 and 2009, although by this time Kheraj had moved on.

The Financial Services Bill is currently in committee stage in the House of Lords and is due to become law later this year.  The Bill will abolish the FSA and replace it with three new bodies, two of which are to be within the Bank of England, to regulate financial services.

The Bill has come under heavy criticism.  Last week MPs making up the Treasury Committee took the unusual step of publishing a 37 page report highlighting the flaws in the new legislation.

The existing regulatory scheme, which will be replaced when the Financial Services Bill is signed into law, was designed by Labour’s shadow chancellor Ed Balls when he was Economic Secretary to the Treasury during Gordon Brown’s government. 

Labour MP Alistair Darling, now heading the anti-independence No campaign, was Chancellor of the Exchequer at the time.  Labour’s regulatory scheme permitted the banks complete control over the crucial inter-bank Libor rate without any legally binding supervision or monitoring.

The Libor scheme was administered by the British Bankers’ Association (BBA).  However, despite being warned in 2007 that there were problems with the Libor rate, neither the BBA or the FSA acted on the warnings.

The current Chancellor, George Osborne, has attempted to pin all the blame for the lack of financial oversight on his Labour predecessors. 

On Thursday Mr Osborne provoked furious scenes in the House of Commons after giving an interview during which he implied that shadow chancellor Ed Balls was implicated in the rate-fixing affair, citing an internal memo submitted in evidence by Barclays saying that the bank was coming under “pressure” from senior Whitehall officials to reduce its Libor listing.  

Mr Balls vehemently denied the specific accusation that he knew about rate-fixing, however he now admits that when in office Labour were “not tough enough” on financial regulation.  When in office under Gordon Brown, Mr Balls gave a number of speeches praising the Labour government’s minimal regulation of the financial sector.

George Osborne has subsequently backtracked and claimed that he was not specifically claiming that Mr Balls was the senior Whitehall source referred to in the email.

Speculation is now rife as to who the “senior Whitehall” figures referred to in the Barclays’ internal memo could be.  Much of Labour’s current front bench was closely associated with the Brown government and its lack of oversight of the financial sector. 

Indeed, current Labour leader Ed Miliband was a key special advisor to Mr Brown during this period.  The present shadow Financial Secretary to the Treasury, Nottingham MP Chris Leslie, was the campaign manager for Gordon Brown when he was elected unopposed as Labour leader after Tony Blair stood down.

Shortly after he was appointed to the Treasury in 2006, Mr Balls gave a key speech to a City audience during which he repeatedly hailed Labour’s “light touch regulation” as key to the City’s success.  He vowed that he would do his utmost to ensure that the City could continue to operate with minimal supervision, adding:  “[The Labour government] will outlaw the imposition of any rules that might endanger the light touch, risk based regulatory regime that underpins London’s success.”  

The full text of the speech was available on Mr Balls’ personal website until yesterday, but it has now been removed.

The Treasury Committee is due to hear evidence tomorrow (Monday) from Paul Tucker, deputy head of the Bank of England official who was cited in the Barclay’s email.  In the memo, former Barclay’s chief Bob Diamond reported that Mr Tucker had suggested there was ‘pressure from Whitehall’ to reduce the Libor rate in 2008.  MPs are expected to question Mr Tucker in order to discover the identity of the Whitehall officials.

Meanwhile Chancellor George Osborne looks likely to further inflame public opinion on bankers’ bonuses.  It was reported in the Financial Times that next week the Chancellor will oppose a European Union move to crack down on excessive bonuses by introducing a 1:1 bonus to pay ratio.