FIN 9858 Summer 2022 CASE: ETH-03
BARCLAYS AND THE LIBOR: ANATOMY OF A SCANDAL
Culture is difficult to define, I think it’s even more difficult to mandate—but for me the evidence of culture is how people behave when no one is watching. 1 -Bob Diamond, (former) Barclays CEO
INTRODUCTION
On June 27, 2012, the storied British bank Barclays admitted that it repeatedly attempted to rig
the London Interbank Offered Rate (LIBOR) over a four-year period from 2005-2009. The
LIBOR was calculated daily, based on the rates at which 16 banks estimated they could borrow
money. 2 Barclays, as one of these banks, regularly submitted rates that were either falsely
inflated or deflated, first with the aim of benefitting its trading positions and later, during the
financial crisis, with the intention of projecting an image of strength and solvency. Tracy
McDermott, acting director of enforcement and financial crime at the United Kingdom (U.K.)
Financial Services Authority (FSA), stated: “Barclays’ misconduct was serious, widespread and
extended over a number of years…Barclays’ behavior threatened the integrity of the rates with
the risk of serious harm to other market participants.” 3 In its settlement, Barclays agreed to pay
$453 million in fines and penalties to bank regulators in the U.K. and U.S. 4
Barclays CEO Bob Diamond—who was in charge of Barclays Capital from 2005-2009, the
period during which the breaches occurred—announced that he and three other executives would
waive their annual bonuses, an act of contrition that was quickly deemed inadequate, and even
dubbed “utterly pathetic” by one commentator. 5 On July 1, 2012, Prime Minister David Cameron
announced a full parliamentary inquiry into LIBOR rate rigging, and raised the possibility of
criminal sanctions. During the next few days there was turmoil in Barclays’ leadership,
culminating in Diamond’s resignation.
Newspapers decried Barclays’ rate-rigging efforts as “the scandal of all scandals” 6 and
bemoaned the spread of “Wall Street sleaze.” 7 Numerous hearings, audits, and other post-
mortems were conducted in an attempt to understand how the rigging had been carried out and
why it had gone undetected for so long. Barclays was credited for cooperating with investigators
and agreeing to settle at an early stage; the fine levied by the FSA was therefore reduced by 30
percent. 8 Throughout the process, Barclays insisted that it was not alone in its manipulation of
the LIBOR. In a July 15, 2012 memo entitled “Restoring our reputation, building our business,”
Barclays’ executive committee stated, “As other banks settle with authorities, and their details
become public, and various governments’ inquiries shed more light, our situation will eventually
be put into perspective.” 9 By late 2012, dozens of other banks did indeed face LIBOR-rigging
inquiries by regulators in various countries.
BACKGROUND
The LIBOR
The LIBOR was a cornerstone of global financial markets. Roughly speaking, it was the interest
rate that banks charged each other for short-term loans. The LIBOR was calculated for 10
different currencies and 15 borrowing periods. The person submitting the daily LIBOR data for
a bank was supposed to submit the interest rate the bank would have to pay on a loan for a
particular term in a particular currency. Often, a bank was not in the market for a particular type
of loan, and in such situations the submitter was supposed to give a good-faith estimate of the
interest rate his or her bank would pay were it seeking a loan just prior to 11:00 a.m. GMT. The
estimated rates were sent to the British Bankers Association (BBA), a trade group, and the
Authority. See George Gilligan, “The Libor Scandal: Another Example of Neutralized and