Major British and US banks caught manipulating financial markets

By Rowena Mason

The Treasury has started to look at strengthening criminal sanctions for those responsible for market abuse after Barclays was fined £290 million by UK and US regulators for manipulating the rate at which banks lend to each other.

HSBC and taxpayer-backed Royal Bank of Scotland are among several other lenders being investigated by the City watchdog for fixing the interbank lending figures that affect millions of homeowners and small firms.
Serious Fraud Office investigators are in talks with the Financial Services Authority (FSA) over the scandal while pressure is mounting on Barclays chief executive Bob Diamond to stand down.

George Osborne, the Chancellor, said Barclays executives must “pay the price” for the scandal. The Chancellor said Barclays and other banks had been in “flagrant breach” of their duties by allowing traders to distort basic data on the key interest rate called Libor.

He said the scandal was a “shocking indictment of the culture at banks like Barclays”, as mortgage holders, credit card users and businesses may have been charged too much for their loans. The Chancellor said ordinary people have paid a “very heavy price” because of the banks and executives must now answer for their greed.

Barclays saw shares slide 15 per cent – wiping £3 billion from its market value – as investors ditched the stock amid fears the fines could be dwarfed by lawsuits and damages. Turning to Mr Diamond, who waived his bonus for 2012 in light of the scandal, the Chancellor said: “As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today.

“What did he know and when did he know it? Who in the Barclays’ management was involved and who, therefore, should pay the price?” John Thurso, MP for Caithness, Sutherland and Easter Ross, said the ruling confirmed the financial markets had neither been free nor fair, “but rather a sewer of systemically amoral dishonesty”.

He said the case for separation of merchant banking from retail banking was “so overwhelming, as to be unanswerable”. The banking sector is expected to remain firmly in the spotlight tomorrow when the Financial Services Authority (FSA) discloses it has found evidence of mis-selling of complex financial products call interest rate swaps to small businesses.

The controversy, which covers a period between 2005 and 2009, could spread to other lenders, as RBS, HSBC, UBS and Citigroup are also being investigated. The penalties, including a record £59.5 million fine from the FSA, followed claims that Barclays manipulated the Libor – London interbank offered rate – and Euribor interbank lending rates. The rates are set on wholesale money markets – where banks lend to each other – which in turn affects rates they pass on to customers through credit cards, loans and mortgages.

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