The F.S.A.'s Contribution to the Barclays 'LIBOR' Scandal!

The F.S.A.'s Contribution to the Barclays 'LIBOR' Scandal!

It looks like our banking regulator, the F.S.A. had a chance to resolve this without the United States financial regulators getting involved. You might have noticed that our American friends are generally pretty diplomatic when having to deal with our inept politicians. But I think we know that as patient as the Americans often appear, its likely to come as a surprise when they do decide to take decisive action where they think it necessary. In this particular circumstance I think the Americans lost their patience, and from what I know about the F.S.A. I am not the least bit surprised!....

When I read about this it was difficult to understand why the press and media has suddenly made such a fuss about this story as it has been around for so many years. I heard about it a couple of years after the financial crisis, but obviously no fines had been dished out at that time. The press and media have just not bothered to cover it since. Either that or have been encouraged not to due to a fragile international financial system which could be further damaged by further bad publicity whilst people were still running away from banks with there money.

There is a possibility the Americans delayed their actions for some years in order to prevent damaging publicity to the world of finance.

From what I have read in the British press, some important details of this story have been left out by most of the journalists covering it. The bit  being over looked is the part the F.S.A. played in this fiasco. They have been aware of the goings on for a long time but would appear not to have taken any action until the U.S. sent in the Financial Industries equivalent of an air strike!

 The way I understand what has happened from memory is this;

Basically what has happened is that the U.S. financial regulator informed the United Kingdom Financial Services Authority that Barclays had been manipulating the 'LIBOR'. This is the agreed  rate for interbank lending which varies, but all major banks contribute their own opinion to what the level should be. Barclays wanted the rate where it was most profitable for them. This, a few years ago would have normally been fairly high, as Barclays would have more surplus cash then other banks in the U.K. This is because Barclays had more depositors than any other bank. They would therefore regularly be on the lending side of interbank lending deals. Hence, the higher the inter-bank lending rate, the higher Barclays profits and bonuses would be. However, more recently they have been trying to lower it. This is because of Barclays' rapid growth into an investment bank.

Barclays Capital currently has more assets under mangement than any other investment bank in the world. In 2008 it was just about in the top 10 ! This is what Goldman Sachs were known for. Barclays have however caught up with Goldman Sachs, and left them behind as far as investment banking is concerned. So this is why their tune has changed as far as the inter-bank lending rate is concerned. They need more money for their lucrative buyout business. Barclays have helped create a shopping spree for corporate buyouts, since the housing market collapsed.
 (This is great news, atleast some one is benefiting from the collapse of the housing market!...... But then again its probably part of the cause of the stagnation in the housing market.............)
  Along with new restrictions on banks having to hold cash, Barclays need cheap money from other sources to continue their buyout bonanza. Barclays had apparently been bribing management at many other banks to raise or lower the 'bar' for the lending rate depending on  their requirements at the time.
(You can see more on this in ' The Legacy of Bob Diamond' soon to be added to the blog posts.)

Any way, the American authorities kindly informed the F.S.A. as to what they believed Barclays were up to. I also understand they specified that they wanted the F.S.A. to take appropriate action.
Im not sure what happened between then and now, but the way understand it is that the U.S. authorities were giving the U.K. authorities a chance to deal with the situation. My guess is they were not satisfied with the F.S.A. and so decided to take action themselves.

The way its supposed to work is that the F.S.A. and the Bank of England are supposed to regulate the British Banks and take actions where required. It looks like the Americans have decided to take action on Barclays themselves despite the in-action of British Authorities. This would then be a kind of 'activist' fine which Barclays would not have been expecting. The choice Barclays probably have is to pay the fine and straighten out their procedures or lose billions in the way of business. I would speculate that the fine by the F.S.A. is in response to the action by the U.S. regulator. How would it look now if they were still to do nothing?

When you take into account the length of time the F.S.A. took to deal with the 'miss selling of PPI', it would be easy to understand why the U.S. regulator became frustrated and reacted accordingly. It took four years for the F.S.A. to come to the conclusion that mis-selling was taking place in British banks.

For the LIBOR scandal the U.S. regulator fined Barclays £230 Million whlist the F.S.A. only fined them £60 Million.

It makes you wonder if; If the Americans didn't get involved, would the FSA ever have done any thing about it?

On second thoughts, may be it doesn't!

The affects of raising the lending rate in the lead up to the crisis could certainly have created problems for smaller banks such as Northern Rock who are known to have borrowed fortunes from other banks. Was it a contribution to the crisis?
It could be an addition to what is becoming a very long list.

There have been conflicting messages on this story depending what you read or who are speaking to. But be aware that when top management start bringing traders into their explanation as to what is going on and blaming them , I don't think you will need me to explain that traders are not going to be making decisions that will affect the destiny of many trillions of dollars. The big decisions are made by the top people thats why they are paid many millions.

 Eighty percent of a top bankers job is justifying their actions, or confusing the public so they don't know what they are really doing. Ten per cent is just public relations, - feeding it to the press who generally eat it up and then feed it to the generally un-suspecting public.

(Percentages expressed are estimates at time of posting which may rise or fall in due course)

By the way, happy independance day to all Americans following this blog!