At first, the announcement that Barclays was paying $450 million to settle charges that it manipulated Libor during the financial crisis seemed like just another minor corporate scandal. After all, it pales in comparison to the $3 billion settlement GlaxoSmithKline entered into this week for the unlawful promotion of prescription drugs. However, Libor – the London Interbank Offered Rate – is used to set interest rates on $350 trillion of dollars and euros of loans and other obligations globally. It is the most basic banking benchmark in the world. At the height of the financial crisis, Libor was viewed by the markets as a key barometer of UK banks’ financial health. The higher a bank’s Libor lending rate, the more fragile its financial condition was believed to be.
Barclays’ admission led to the resignation of the bank’s chairman, Marcus Agius, as well as its high-profile, American-born CEO, Robert Diamond, and others. More resignations (or dismissals) are likely, and criminal indictments in the UK as well as the US could follow. There appear to be mountains of evidence that the conduct in question was intentional and widespread, both within and among major banking institutions in the UK and likely the US. For example, one Barclays banker wrote in a December 4, 2007 email that “[w]e are being dishonest by definition and [are] at risk of damaging our reputation in the market and with the regulators.” The acts in question didn’t happen once or twice. They were not isolated instances. They were not the acts of a few bad apples. As the Financial Times phrased it over the weekend of June 30/July 1, the law was broken “systematically and over a period of many years, both before and after the crisis.” The individuals and institutions involved knew they were doing wrong and did it anyway, repeatedly.
If matters ended there, things would be bad enough. However, it appears that this scandal is much worse.