Late yesterday, the UK's Serious Fraud Office announced it will open a full investigation into attempts to fix lending rates. In a sign that the rot extends further than Barclays, the SFO indicated it will investigate possible shenanigans at other banks as well.
But that wasn't nearly the worst piece of news for Barclays. A former top Barclays banker wrote an anonymous op-ed in The Independent claiming that top executives--including former CEO Bob Diamond--almost certainly knew about attempts to fix lending rates, including the London interbank offered rate.
Diamond said he found out what his traders were up to only two weeks ago, when the fines dropped into his inbox. What I don't understand is why the MPs didn't make more of that. If that is the case, and yet they've paid £300m in fines, in my view it is impossible that he wouldn't have known.This could be a potential bombshell, since Diamond claims the first he learned about Libor fixing by his traders last month. However, the banker claims Barclays brass would have known about Libor fixing as early as 2008.
Barclays operates a policy of escalation. That is endemic. It is almost entombed in the culture of the bank. The purpose of that is that if something goes wrong it gets escalated up the line. I don't know how or why Diamond wasn't questioned more on that point. Libor fixing was escalated by several people up to their directors, they would then have escalated it up to the line because, at Barclays, if you don't escalate and it is found that out you haven't, it is grounds for disciplinary action. You will be dismissed. You are taught that, and you have to do regular in-house FSA courses. You have to sign off every year. If a member of a team saw something and didn't escalate they would be fired.
Back in 2008, we noticed what was going on with Libor. We were informed on a weekly basis of the rates we were having to charge to clients and the rates at which Barclays was borrowing. The dealers in our Treasury area, they would send a monthly update of the difference between the Libor interest rate they were quoting and the Libor they were getting. They were advising us of the difference of what was being published and their actual cost of funds. This was escalated up.If I'm Diamond and I'm reading this, I'd have a lawyer on speed dial. Ditto for anyone else on Barclays' board. Anyone who knew about this and did nothing belongs in jail. Indeed, it wouldn't be out of line to kick Barclays out of the United States altogether if this were the case.