Monday, July 2, 2012

Regulation:  Barclays Fined for Manipulation of Libor

Barclays will pay $450 million to U.S. and British regulators to settle allegations that it rigged the interbank lending rate known as Libor, marking the first resolution in a sweeping investigation of the world's largest banks.

Libor, the London interbank offered rate, is a standard interest rate for loans between banks that serves as a benchmark for more than $360 trillion in lending to businesses and consumers.

The British bank admits to scheming to manipulate rates to increase profits and hide the reality of its distress during the financial crisis. Regulators suspect Barclays did not act alone, but was part of a larger conspiracy to set artificially low rates for Libor and the Euro interbank offered rate, or Euribor.

About a dozen financial institutions, including Bank of America, HSBC and JPMorgan, submit data to set the daily Libor rate. That information is collected on behalf of the British Bankers' Association by Thompson Reuters, which calculates the averages and devises the Libor rate.

Critics of the system say there is not enough transparency in how banks set their daily rates, which leaves the process wide open to fraud.

"This is an example of how letting the market regulate itself doesn't work," said attorney Brett Kappel of Arent Fox. "Given that the private sector has proven itself to be vulnerable to fraud, the next logical step would be to have the Libor rate determined by a government body."

For more, see Barclays Fined for Manipulation of Libor by Danielle Douglas, June 27, 2012 at The Washington Post.

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