Why Barclays bank was fined £290 million?


In June 2012, British bank Barclays was fined £290 million for trying to manipulate LIBOR  rates.

What does that mean?

Just like normal people borrow money from banks; banks themselves borrow money from other banks. They do this for various reasons but often due to cover cash flow in short duration. LIBOR is an indicator or how much one bank has to pay to another bank for borrowing money. In other words, it is a rate at which one bank pays interest to other banks. Just like a customer with good credit score gets a lower interest (as he is considered lower risk), a bank with good reputation gets lower LIBOR rate. How the banks’ credit scores are determined? It is calculated from bank’s financial numbers like how much it is actually costing them to borrow etc.

Barclays actually lied how much it is costing them to borrow. This, in turn, makes them appear lower risk to other banks compared to what might have happened if they quoted their true financial numbers. Thus, they lied to get a lower interest rate from other banks. So, if they had disclosed their true financial data, other banks could have charged more interest to lend them money. Thus investors who lent money to Barclays lost money in interest.

Just like a country’s share index is measured upon how some big businesses are doing, a country’s LIBOR rate is also a measure of how healthy its overall banking sector is. If one bank reports wrong financial figures for its own health, this will affect the overall LIBOR rate. Many financial (both business and retail) interest rates are directly dependent on LIBOR rates. So, wrong manipulation of LIBOR rate is considered a fraud.

Barclays’s traders also bribed and coaxed employees of other banks to make them submit their figures so that it looks better in Barclays favor.

The common British public demanded a full enquiry on this unfair practice as they suspect other banks might be doing this as well. However, so far current British government did not show any move to initiate such enquiry. People believe that this is because wealthy bankers pay hefty donation to political parties and thus neither Conservative nor Labour party are willing to upset their billionaire donors.

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One Response to “Why Barclays bank was fined £290 million?”

  1. Chet Says:

    I think its great that Barclays Banks CEO Resigns!

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