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Barclays chief: I blame Bank of England!


4:29 pm - July 3rd 2012

by Sunny Hundal    


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Looks like everyone is about to go down.

After Bob Diamond’s resignation today, Barclays have published a document that they say is a “brief summary of the salient events and the actions “that Barclays has undertaken since becoming aware of them”.

In other words, this is their version of events.

The key bits quoted below are devastating, essentially because Barclays is now blaming everyone else and saying they were also part of this conspiracy.

Suddenly, the list of possible resignations grows longer.

As one would expect, Barclays (including Bob Diamond and Jerry del Missier) was in close contact with the Bank of England and other Authorities about the liquidity crisis generally. On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.

Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.

There was no allegation by the Authorities that this instruction was intended to manipulate the ultimate rate. The bank’s submissions had consistently been excluded from the LIBOR calculation. Moreover the instruction became redundant in a matter of days as market conditions improved.

This is utterly bizarre since only a few days ago Barclays admitted wrong-doing and Bob Diamond himself admitted he was in the wrong.

Now that he has been forced out, it seems he wants to take down everyone.

The Bank of England itself is now in the dock. It’s about to get nasty.

UPDATE: Barclays also throws other banks to the wolves.

– Barclays believed that other banks were making LIBOR submissions that were too low and did not reflect market conditions.

– During this period, Barclays was consistently raising concerns with the BBA, questioning why other banks’ LIBOR submissions appeared to be so low compared to those of Barclays. Many of these concerns were based upon Barclays observations that other banks were making submissions which were lower than levels at which they appeared to be undertaking transactions. Subsequent research by the New York Federal Reserve staff members concluded that banks LIBOR quotes were systematically below their borrowing rates by 39 basis points after the Lehman bankruptcy. Barclays own submissions for tenors of 1 month to 1 year LIBOR were higher than actual Barclays trades on 97% of the occasions when Barclays had actual trades during the financial crisis.

– Barclays also raised concerns with the FSA, the Bank of England and the US Federal Reserve. The documented occasions on which Barclays made such contact are illustrated in the attached document Timeline of regulatory contact.

We’re taking everyone down with us

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Hang on. If Barclays’ allegation is true, doesn’t that simply involve the Bank of England intervening to set interest rates in a crisis? Which is, y’know, its job?

2. Luis Enrique

isn’t this a “look over there!” move?

it’s one thing to want to keep libor rates “artificially” low during a credit crunch, for the sake of the greater good.

it’s another thing to piss about with libor rates at other times as a favour to your buddies who have derivative contracts hanging on basis points.

(presumably other banks thoroughly deserve to get thrown to the wolves – I’ve not followed this terribly closely, but my guess is that if a well-connected derivative trader wants to push libor around so he can win his bets, he’s going to have to call more than one libor-setting bank to manipulate the rate. Proviso: I may have misunderstood what went on)

3. Frances_coppola

The last line of the file note regarding the 2008 phone conversation between Diamond and Tucker reads thus:

“Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”

It’s not just the Bank of England that is in trouble, is it?

4. margin4error

If there is any genuine evidence that the Bank of England or its various individuals did give a subtle green light to what the banks were doing – then the UK’s position as a financial centre probably won’t survive this scandal.

One of our biggest assets has been the sense that London is an honest place to do business with strong legal protections and good practice. Hence why Russian firms (as an example) like listing on the LSE.

To lose that credibility means those firms will list in other centres and London will lose critical mass as the banks follow the money elsewhere.

I do however think it unlikely the bank of england ever did anything that would ammount to an instruction to corrupt the libor rate.

What Luis said. There is absolutely nothing wrong with the government and the BoE and the banks colluding to stop everything falling apart during Lehman week. That’s what they’re supposed to do.

However, there is a lot wrong with the banks rigging the numbers when there isn’t a crisis. If anyone has any evidence that the BoE colluded in the latter, *then* we’ve got evidence that civil servants and policymakers behaved unethically.

But I strongly doubt that’s the case.

isn’t this a “look over there!” move?

it’s one thing to want to keep libor rates “artificially” low during a credit crunch, for the sake of the greater good.

it’s another thing to piss about with libor rates at other times as a favour to your buddies who have derivative contracts hanging on basis points.

They do address this point in their release. 2005-9 libor fiddling was apparently done at trader level, without senior management being aware. (They ought to have been aware, but given that this was likely to be a fiddling by one or two basis points, it’s not implausible that they weren’t.) 2008 fiddling was large-scale (30+ basis points), and done in response to unsubtle nudging by the BoE after persistent ‘high level’ complaints from Whitehall.

It’s like the difference between one of the printers at the Royal Mint walking off with a roll of 50s, and Quantitative Easing…

If there is any genuine evidence that the Bank of England or its various individuals did give a subtle green light to what the banks were doing – then the UK’s position as a financial centre probably won’t survive this scandal….

To lose that credibility means those firms will list in other centres and London will lose critical mass as the banks follow the money elsewhere.

I think that’s over-egging the pudding slightly. If it turns out that, shortly after the Lehmans collapse, the Government/BoE were pressuring banks to fiddle short-term interbank borrowing rates (at a time when virtually no interbank borrowing was happening) it’ll be intensely embarrassing for Bank and Treasury figures, but not an extinction level event. It’s not of the order of magnitude of BCCI.

M4E: depends on the kind of manipulation. If, as is very unlikely, BoE colluded in Barclays’ traders’ regular dodginess, then that would be a very serious blow indeed to the city. If, as is entirely probable, everyone colluded to stabilise LIBOR during the Lehman blow-up, then it wouldn’t.

Tim: perplexed as to why the latter would even be embarrassing. “In a crisis, when there was no market rate, we did everything we could to stop the financial system from collapsing. Yay us”. Only ultra-partisan nutjobs have anything to be upset about there.

Another example of the right wing theory of paying the people at the top huge money because they take responsibility is smashed to bits. If it’s not Murdoch, or Diamond, or Fred the shred, it’s some other shyster. When it goes wrong they all say it’s not me gov.

Self regulation and high pay is bullshit. It has just been an excuse for class war on the majority. The rich trying to find an intellectual argument to hide what this is really about, namely Greed.

The elites have created a rigged system for themselves and their mates. They own the politicians, the media. This is outcome of Thatcher Reagan. A small elite who have stolen everything they can lay their hands on and given back nothing..They wanted to return the world to the 18th and 19th century . Crime for the rich pays.

Barclays Banks CEO Resigns!

11. White Trash

2 “it’s one thing to want to keep libor rates “artificially” low during a credit crunch, for the sake of the greater good.”

Is it? And who defines “the greater good”? And whose “greater good” anyway? And for how long? And why put “artificially” in quotes? If proactive measurse are being taken behind the scenes to deliberately alter something which is supposed to be set by the action of the magic Markets, then surely that is artificial manipulation by any definition?

This overall trend towards the deliberate holding down of interest rates which we have been subjected to over the last few years, and continue to be subject to, must have particular effects on the economy, such as making money cheaper for spendthrift borrowers at the expense of savers? Doesn’t this mean more indebtedness or overleveraging and less saving, as it ceases to be worthwhile to be responsible?

Isn’t this the root of the whole mess?

Do please enlighten me, I’m just a poor innocent bystander to all this nonsense.

12. Chaise Guevara

@ 11 White Trash

“Is it? And who defines “the greater good”? ”

The people whose job it is to set the LIBOR, rather than people who could profit from secretly biasing it?

I make no comment – not qualified – on who is in the wrong in this case, but the BoE setting the LIBOR and Barclays allegedly fixing it are hardly equivalent.

13. White Trash

Chaise – but isn’t the whole point that “the Markets” (genuflect, genuflect) are supposed to set the rate by their natural ,’free’ workings, rather than being set bycentral diktat?

In addition to which, isn’t another major issue that the BoE and whatever other financial institutions were doing the whole thing covertly, behind people’s backs, rather than transparently?

14. Luis Enrique

WT

I used quote marks because at height of crisis interbank market ceased to function so any reports rates are artificial.

The greater good is easy to define in this case. Financial collapse leading to giga recession and mass unemployment bad, helping lessen that, good. Crazy high libor rates were a key cause of panic, financial collapses can be panic induced, holding libor rates back at that time, even if by artificial maniplulation, was sensible.

Monetary policy is supposed to be “deliberate”, low interest rates are supposed to hurt savers, and encourage people to go out and spend money on, say, home improvements, instead of saving it. Whilst they may also encourage borrowing they also make it easier to pay off your debts if you wish to.

15. Luis Enrique

Its utter nonsense to think that free marketeers have this idea that things like interest rates and asset prices should be free from policy intervention, Milton bloody Friedman was a monetarist I.e. advocated policy intervention in money markets.

16. Frances_coppola

I think you all need to read the Barclays statement a little more carefully. Barclays are alleging that from September 2007 to December 2008 – i.e. for the WHOLE of the financial crisis – other banks were making LIBOR submissions that Barclays knew to be significantly lower than their actual funding costs. Furthermore, Barclays say that they repeatedly drew this to the attention of the BBA, the BoE, the FSA and the Fed, all of whom took no action. If this is true it doesn’t exactly show either the other banks or the regulators in a good light, does it?

The 2008 phone call was not in Lehman week, as some have alleged. Lehman failed on September 15th. The phone call was October 29th. If intervening to prevent meltdown was so important, how come it took the BoE six weeks to ask Barclays to reduce their LIBOR submissions?

I have also just seen this post from Alea:

http://alea.tumblr.com/post/26435797551/the-barclays-chart-you-need-to-see-felixsalmon

The first chart (from the FT’s James Mackintosh) shows that Tucker’s phone call had a significant impact on Barclays’ LIBOR submissions, no doubt because of Jerry Del Missier’s instructions to submitters. However, the second chart shows that the LIBOR submissions remained at the top end (and so were excluded from the LIBOR fixing), because all the other banks reduced theirs too. Maybe Tucker had a quiet word with all the panel banks, not just Barclays?

15: Actually Luis there are free marketeers opposed to control control of interest rates (the Austrian School). Which isn’t to deny that plenty of less “pure” free marketeers are in favour of what the BoE does.

18. Chaise Guevara

@ 12 WT

“Chaise – but isn’t the whole point that “the Markets” (genuflect, genuflect) are supposed to set the rate by their natural ,’free’ workings, rather than being set bycentral diktat?”

According to some. Personally I’m in favour of judicious use of central diktat.

“In addition to which, isn’t another major issue that the BoE and whatever other financial institutions were doing the whole thing covertly, behind people’s backs, rather than transparently?”

If they were, then yeah. It’s not clear yet. My point really was that the BoE aren’t fixing the system for personal gain, which is what Barclays is accused of (again, unclear if they actually did).

Does any real-world economy actually operate according to the undiluted principles of the Austrian school of economics?

I don’t know much about the Austrian economy but have gathered that it is rather more successful in performance than most other west European economies but that could be because the Social Democrat Party there has spent long periods in government. In short, the Austrians don’t seem to have taken the notions of the Austrian school of economics very seriously.

The Austrian school of economics has nowt to do with Austria. It’s associated with the University of Chicago, some of whose professors after WWII were Austrian emigrees.

John B

That’s a bit garbled about the Austrian school of economics which long predated the movement of Hayek from Austria to the LSE before going on to settle in Chicago.

Carl Menger and Bohm-Bawerk are widely credited as founders of the Austrian school and they never made it to Chicago. Besides that, nowadays the Von Mises Institute lays claim to the Austrian tradition.

Btw I was recently amazed to learn that in his retirement Milton Friedman had moved from Chicago to settle in San Francisco, which is widely regarded as the most leftist city in America by a margin – registered Democrat voters there reportedly outnumber Republican voters 5:1.

With the depressed state of the western economies, economists in the keynsian tradition – like Krugman, Stiglitz, Brad Delong and Summers – are looking a deal more credible than the Chicagoan economists. As John Kay put it in the FT:

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.
http://www.ft.com/cms/s/0/19491372-472c-11df-b253-00144feab49a.html

Readers here may be interested in this link to a recent academic paper mentioned in various reports: Fiscal Policy in a Depressed Economy, by Brad Delong and Larry Summers:
http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2012_spring_bpea_papers/2012_spring_BPEA_delongsummers.pdf

23. pete stanway

But the chairman of Barclays who resigned and then deresigned said on TV it was only a handful of rogue traders who had done wrong. Now they appear to be saying they had instructed the traders.One of these states is a lie or now trust has gone , perhaps both statements are lies.

23: According to Barclays, there are two different manipulations occurring. “Rogue traders doing wrong for their own trades, 2005-2009”, and “Barclays joining everyone else to keep LIBOR down on the BoE’s say so, 2008”.

25. Dick the Prick

Either way, if careers are wrecked by this then cool beans.

26. Luis Enrique

Frances,

Interesting thanks, I wasn’t clear on the timings. Yes i dont expect this to be a Barclays only thing.

27. Planeshift

“Does any real-world economy actually operate according to the undiluted principles of the Austrian school of economics?”

Can’t resist it….

Somalia.

28. Luis Enrique

I should probably add, afaik libor is supposed to be a market price and is not something the BoE is supposed to be interfering with. I just think that if it did apply some pressure on Libor submitters during the financial crisis, with the goal of tamping down panic, well I find that hard to get too upset about.

But Felix Salmon has a somewhat different take on what that phone call with Tucker was about:

That’s a regulator doing what regulators should do — telling banks to get their act together and normalize their operations. What he meant, I’m sure, is that Barclays should do whatever it took to improve its reputation with other banks, so that they would lend to Barclays at lower rates.

so maybe the BoE wasn’t simply trying to push down Libor

29. Luis Enrique

for anybody interested, this Stephanie Flanders piece contains an interesting Merv quote about Libor, from 2008

“It is in many ways the rate at which banks do not lend to each other, and it is not clear that it either should or does have significant operational content. I think it is convenient, very often, for people to justify what they do for other reasons, in terms of Libor, but it is not a rate at which anyone is actually borrowing. It is hard to see how it can actually have much of an impact.”

Salmon mught just have a point….if Tucker didn’t appear to be passing on Whitehall instructions that is!

I see Operation Save Tucker is now in full swing.
If regulators were simply doing the right thing then perhaps it might have been a little more seemly for them not to have demanded Diamond’s head.
Well now he can, and I hope will, have his revenge.

And what does KIng mean by Libor not having much of an effect when it is a reference point for settling all kinds of contracts?

31. margin4error

Interestingly there is a real problem ahead for the banks now.

How can anyone who needs a public mandate now be seen to be supporting banking in the UK? If the EU wants to put regulations on banking (onerous or not) it would be utterly stupid of a PM to throw away his career to support the banks and be seen to block that move. After all – new regulation is clearly needed.

Not that the banks should be opposing regulation right now. They would be better of engaging in agreeing new regulations that are quite simply going to have to happen if the markets are to restore trust in the UK’s financial sector (and thus keep money coming here instead of Hong Kong, New York and elsewhere).

Our banking system has been shown to be incompetent and corrupt over the last few years – to an extent that has crippled trust in London as a financial centre.

We need real and severe action to rebuild trust if we are to stay a major financial center. (note – a major one – too late now to stay the leading one)

32. margin4error

The positiion from Barclays is a bit worrying.

I’m inclined to ingore the largely spiteful anger of scum like Bob Diamond – not least because his interpretation of the comments between him and Tucker is rather badly spun. The suggestion, for example, that when barclays told tucker the problem was other banks charging below cost, that Tucker’s reponse of “that would be worse” meant that telling people in Treasury would be worse, rather than charging below cost would be worse – is a bit ludicrous. It just doesn’t read that way, so it takes some personal interpretation to find that.

However, that does not mean Barclays’ “we were the only honest bank around – all the others were the ones fixing prices” is not so absurd. Alright, Barclays are clearly not an honest institution – and their behaviour was corrupt. But their complete misalignment with the rest of the banking sector might indicate something of a herd mentallity across banking. A herd mentality caused the credit crunch – with bankers just unthinkingly doing what other bankers were doing – and that could well be the same with Libor, as banks may have been pricing largely on the basis of what the market seemed to suggest banks were charging.

That herd mentality – more than specific corruption – is the cancer that will destroy our banking sector if it isn’t fixed.

33. Dissident

planeshift

haha you say it all! Somalia, that bastion of ecenomic growth. Interesting, since USA seems to play by the Austrian School small state libertarian principles, everywhere else except USA!!


Reactions: Twitter, blogs
  1. Rebecca Devitt

    Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/SoPbxDPq

  2. anna-rose phipps

    This is all starting to look like a power play re: Bank of England >> Barclays chief: I blame Bank of England! http://t.co/2mhHqTQR

  3. GMB Milton Keynes

    This is all starting to look like a power play re: Bank of England >> Barclays chief: I blame Bank of England! http://t.co/2mhHqTQR

  4. Robert Miller

    Barclays post updated: Now it drops *everyone* in it, saying others knew what it was up to http://t.co/4msGDmdn

  5. WallStreetCheats

    Here is that devastating attack on the Bank of England by Barclays http://t.co/nJju0i8g I can hear City bankers running to nuclear shelters

  6. Clive Burgess

    Barclays post updated: Now it drops *everyone* in it, saying others knew what it was up to http://t.co/4msGDmdn

  7. liane gomersall

    Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/mzWQYeSz

  8. Bennwasright

    Barclays post updated: Now it drops *everyone* in it, saying others knew what it was up to http://t.co/4msGDmdn

  9. Gareth Hughes

    If a rioter claimed everyone was looting while police stood by, they'd be sent down. Barclay's making same defence. http://t.co/KobURzCH

  10. Contractor Mortgages

    Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/GOLN1YvD

  11. Paul Rooke

    OurLeadStory: Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/WMeBGGbD, see more http://t.co/7A0eAMZc

  12. BevR

    Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/Vai9PYMG via @libcon

  13. Serf of Britain

    Liberal Conspiracy – Barclays chief: ‘blame Bank of England!’ http://t.co/tgIppAeA

  14. Alex Braithwaite

    Barclays chief: I blame Bank of England! | Liberal Conspiracy http://t.co/Q2ro2aMj via @libcon

  15. Michael Rawlings

    Barclays chief: I blame Bank of England! | Liberal Conspiracy: The Bank of England itself is now in the dock. It… http://t.co/fVOwaDzZ

  16. NotYourBankersHome

    Here is that devastating attack on the Bank of England by Barclays http://t.co/nJju0i8g I can hear City bankers running to nuclear shelters

  17. Osborne Points at Brown, Barclays’ del Missier Indicates BoE and Bob Diamond Pleads Ignorance | Empire Claims Blog

    […] SFO announced today that it will launch a formal investigation into the inter-bank lending rate rigging scandal. US and UK regulators already investigated, but had only fee-levying power which they used to a great extent, slapping a £290million fine on Barclays alone, with more sure to follow. […]





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