Barclays 'focus of Libor rate quiz'

Friday 25 March 2011 15:09

Barclays is at the centre of an investigation into whether banks manipulated wholesale borrowing costs at the height of the credit crunch, it was reported today.

The blue-chip banking giant is said to be the main focus of a US and UK regulatory probe into alleged rigging of inter-bank lending rates - known as Libor - among a number of banks between 2006 and 2008, according to the Financial Times.

Barclays is understood to be one of four banks to have received subpoenas about the setting of Libor, alongside Citigroup, Bank of America and UBS.

It is thought banks may have understated Libor rates to reduce borrowing costs and limit investor panic.

Libor soared to record levels as wholesale money markets shut down amid the credit squeeze.

It is used as the reference point for an estimated 350 trillion US dollars (£217 trillion) of financial products globally.

Artificially lower levels of the rate could leave lenders and investors out of pocket from lost interest, although borrowers would benefit.

Barclays declined to comment, but is reportedly under investigation over whether it violated so-called Chinese Walls that prevent information-sharing between different parts of the bank.

Swiss bank UBS first flagged-up the transatlantic inquiry when it revealed last week it had received a subpoena from the Securities and Exchange Commission, the Commodity Futures Trading Commission and the US Department of Justice.

The British Bankers' Association (BBA), which sponsors the Libor rate and commissions Thomson Reuters to carry out daily calculations, has defended its rate-setting process and controls.

It surveys banks daily to gauge the rate at which they believe they could borrow on the open market, which is then used to set the benchmark.

A BBA spokesman said: "It is fully transparent - all of the data inputted by the contributor banks is publicly available, as is our methodology. And all decisions regarding the design and governance of the benchmark are taken in full consultation with market participants.

"We observe rigorous standards in our scrutiny and governance of the Libor mechanism, and work with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks."

The BBA also points out that it removes any outlying submissions from the daily survey and uses the average of the middle values to make it hard for a single bank to influence the result.

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