Q&A: What the Libor scandal means for the banks – and you

 

Q. What is Libor?

Libor is an interest rate that is based on what banks are charged when they borrow money from other banks. It stands for the London Interbank Offered Rate and is overseen by the British Bankers Association (BBA), which is chaired by Marcus Agius. He also just happens to be the chairman of Barclays.

Q. Why on earth does it matter?

Ah. While the price of ordinary mortgages is based on Bank of England base rates, the rate borrowers pay on many other products depends on the Libor. These include "sub-prime" mortgages offered to those with poor credit ratings, certain credit cards personal loans and loans to small (and big) businesses.

Q. How is it calculated?

The Libor rate is calculated by Thomson Reuters, the media and data company, on behalf of the BBA. Banks report their borrowing costs to it, which must be based on what they pay in London for loans over various time periods from as little as a day to much longer. Thomson Reuters then produces an average which is the Libor. Because banks might pay different rates in different currencies there is a Libor set for sterling, dollars, yen, etc

Q. Are consumers affected?

Potentially, that is if you (or your business) had a financial product whose price was linked to Libor. The difficulty faced by consumers is first of all proving they had suffered a loss as a result of their bank's actions. Working out how much that could be is theoretically much, much more complicated. Libor changes every day and the regulators said while Barclays attempted to manipulate it, it didn't necessarily succeed. That said, lawyers in the US are already girding their loins for a very big fight. Barclays claims that its own customers would not have been affected – but many other financial companies do use Libor.

Q. Where will the £290m fines go?

The way the financial regulatory system works is if a bank is fined the money goes into the regulator's coffers. At the moment that's the Financial Services Authority, in future the Financial Conduct Authority. The money will reduce the fees paid by other financial institutions (banks that kept their noses clean, brokers, fund managers, insurance companies, etc). The Chancellor has, however, suggested that this could be changed and that he could make the change retrospective so the money might go the Treasury. Which, it should be said, has spent billions bailing out banks and keeping the financial system afloat.

Q. What about the individuals who were involved ? Will they get off scot-free?

Not necessarily. The FSA has the power to penalise individuals as well as companies, and this is likely to follow. Options range from reprimands, to fines, to bans from working in the City. It can't prosecute in this case, however. Libor rates don't qualify under its market abuse regime. The Serious Fraud Office has greater powers, but it may have its work cut out. Overseas authorities may have the option of prosecuting, so if the SFO won't act, the US Department of Justice might.

Q. Who's next?

That's the big question. The regulators are looking carefully at other banks and their submissions to Libor. All the other big UK banks – Royal Bank of Scotland, HSBC and Lloyds – will say is that they are co-operating with the authorities. But the Chancellor has confirmed that the first two are under the spotlight.

Q. And what's next for Barclays?

More bruises. And potential resignations, if not now then in the weeks that follow.

News
David Beckham
peopleFootballer joins No campaign
Sport
Angel Di Maria
Football
News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game
film
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
News
newsIn short, yes
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

Arts and Entertainment
art
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week
The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

The fall of Rome?

Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
Glasgow girl made good

Glasgow girl made good

Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
Sequins ahoy as Strictly Come Dancing takes to the floor once more

Sequins ahoy as Strictly takes to the floor once more

Judy Murray, Frankie Bridge and co paired with dance partners
Wearable trainers and other sporty looks

Wearable trainers and other sporty looks

Alexander Wang pumps it up at New York Fashion Week
The landscape of my imagination

The landscape of my imagination

Author Kate Mosse on the place that taught her to tell stories