Barclays fine and what it means to you

28th June 2012

It seems that banks just can’t help themselves.  Despite the financial and often self-inflicted turmoil of the last five years, they haven’t learned the Google motto of ‘Don’t be evil’.

So the news that Barclays has been slapped with mega fines for manipulating LIBOR rates is shocking, but not so much a surprise.

And, if you calculate it as a percentage of Barclays’after tax profits last year of £3,951 million, the fine of £59.5 million (or just 1.5%) seems pretty paltry. To put this in perspective, it’s equivalent to the kind of fine you and I might incur for a variety of minor offences, and much less than the maximum for not picking up after our dogs (£1000). *

US and UK regulators have discovered that Barclays staff tinkered with LIBOR - the interest rates that banks charge each other, or so they say.  Posting higher or lower rates could mean big profits, depending which way Barclays traders were placing their bets.

There are plenty of funny-not-funny emails between Barclays staff in the FSA official notification here.  Why do well-paid people incriminate themselves thus, we wonder? 

It looks like Barclays was not alone.  More than twenty banks are being investigated.  The total impact could run to trillions, even if regulators find that rates were tweaked by a couple of basis points (or hundredths of one per cent in normal talk).

The regulators, political committees and banking experts are now trying to work out exactly what this skulduggery means to savers and borrowers.  This also poses the question, who is going to prison for what looks like a massive fraud (even though we’re not the Police or even lawyers).

For mortgage customers, many rates are linked to LIBOR.  Over the five years this manipulation is supposed to have occurred, borrowers would have won, if rates were deliberately lowered, but shelled out more than they should if they were set high.

Most savings rates are not LIBOR linked, so the effect is a little less direct.  Banks set their savings rates on a number of factors, including the margin they want to make between (higher) lending rates and (lower) savings rates.  So if LIBOR is found to be too low, then savers would have come off badly.

If you’re a Barclays saver, it might be a good time to look for better rates in any case.  We don't have a single Barclays product listed in our Best Buy tables - LIBOR-linked or not.

* Gross Disposable Household Income for the UK in 2009 (so what's left after taxes, bills etc and roughly equivalent to Corporate Profit After Tax) was £15,333 and 1.5% of that is £230.

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