This presentation is pledged to explain the London interbank offered rate scandal (LIBOR) that came to light in 2012 after one of its main offenders; the Barclays bank accepted about the manipulation of the interest rate. This scam was conducted due to the unethical practices by top executives, traders and employees. LIBOR manipulation was the result of unethical approach of top management and traders. London Interbank offered rate (LIBOR) is the largest financial scandal of all time.

1. (Focused on Role played by senior executives at Barclays )
Presented by –
Ritam Agrawal

2. Introduction
The LIBOR scandal
Factors affecting LIBOR:-
 Internal Factors
 External Factors
Conclusion

3. The London Interbank Offered Rate is the average interest rate at which Banks in
London can exchange money. It is the rate at which banks borrow funds from other
banks in the London interbank market.
Libor rates are published daily at 11:30 am according to London time by Thomson
Reuters.
This rate is calculated for ten currencies and fifteen borrowing periods ranging
from overnight to one year.
More than $350 Trillion are tied up to LIBOR rate in form of derivatives and
financial products.

4. Each LIBOR rate is calculated using the "trimmed mean”.
 Trimmed mean is calculated by discarding the highest and the lowest
contributions. They then take an average of the remaining middle rates. (For
example-16 banks)
This calculation reduces the impact that any single contributing bank can
have on the final officially published rate.
These figures are then distributed by Thomson Reuters by midday London
time.

5. LIBOR acts as a shorthand measure of stress in
global money markets.
LIBOR rates are also used in many derivatives transactions.
Primary benchmark for short term interest rates globally.
Proves as the basis for settlement of interest rate contracts on many future
and options exchanges.
Is also considered a barometer to measure the health of financial money
markets.

6. The scandal came to light
when it was discovered that banks had falsely
inflated or deflated their rates so as to make
profits from Libor trading.
In order to give the impression that banks were more credit worthy than
they were in reality, manipulation of interest rates took place.

7. Trading-based manipulation
The immediate beneficiary of trading based manipulations was specific Barclays
traders. Internal trading was going on between traders and their clients in return of
commission or bonuses.
Reputation-based manipulation
In order to show a better credit worthiness of the bank than it actually was,
Barclays manipulated the Interest rate in its own favour.

8.  Reward System
 Corporate culture
 Individuals

9.  The traders and Employees of Barclays
involved in LIBOR scam were rewarded in form of commissions or big
bonuses.
 They were also awarded various kinds of perks from their clients. One such
instance is after a Barclays submission was lower, as requested, one of those
outside traders emailed their contact: “Dude. I owe you big time! Come over
one day after work and I’m opening a bottle of Bollinger.” (Rosenberg, 2017).
 Barclays’ Swaps traders - To manipulate the published LIBOR rate for the
benefit of specific derivatives trades.

10. Submitter: “Hi All, Just as an FYI, I will be in noon’ish19 on
Monday [...]”
Trader: “Noonish? Who’s going to put my low fixings in? hehehe”
Submitter: “[...] [X or Y] will be here if you have any requests for
the fixings”
Source: Financial Services Authority, 2012. Final Notice.

11. “[...]Barclays failed to have adequate systems and
controls in place relating to its LIBOR and EURIBOR
submissions processes until June 2010, and failed to
review its systems and controls at a number of
appropriate points[...]”
───Treasury Select Committee

12. No specific systems and controls relating to its LIBOR
submissions processes until Dec 2009
 No clear guidance about the importance of the integrity of the
process
 No training to the submitters
 No formal monitoring
Source: Financial Services Authority, 2012. Final Notice.

13. Underestimations of LIBOR Submissions:
 The submissions had been seen as low-risk procedures
Misconception about internal control system
 Installation of a trading compliance software was considered as funding
in the reputational risk more than in the regulatory risk.
Source: Financial Services Authority, 2012. Final Notice.

14. “ […]this attempted manipulation of LIBOR should not be dismissed as being only
the behaviour of a small group of rogue traders. […]Such behaviour would only be
possible if the management of the bank turned a blind eye to the culture of the
trading floor. ”
──Treasury Select Committee
“You could not escape the conclusion that the culture of this institution was coming
from the top(i.e. Bob Diamond).”
──FSA’s senior banking regulator Andrew Bailey
Source: BBC, 2012. Barclays: FSA regulator criticises 'culture of gaming'

15. Bob Diamond, a key figure in Barclays’s culture.
 Overconfidence
 Lead to underestimation of risks
 Describe culture as “ how people behave when no one is watching” --
overconfidence in autonomy
 Underestimated the investigations by FSA, CFTC and Department of
Justice
 Asserted high bonuses to staff
Source: Aldrick P., 2012. How Bob Diamond got it wrong, The Telegraph.

16. Representation of the “risk-prone” culture and the success-based
culture
 Personal moral philosophy: Profits were the ultimate aims and ethics
were put aside
Leader’s moral philosophy can influence the ethical climate in the
organization (Mendonca, 2001)
Source: Mendonca, M. (2001). Preparing for ethical leadership in organizations.

17.  Media
 Industry
 Supervision Agencies
 Culture

18. 2007-2008 financial crisis, bank’s liquidity
conditions raised growing concerns.
Media focused on Barclays’s submissions, being
significantly higher than those of the other panel
members.

19. On April 16, 2008, a Wall Street Journal
article questioned the integrity of LIBOR.
New York Fed officers met to discuss eventual measures.
Barclays admitted “to have always assessed trustable and
accurate LIBOR” and not to have had an illegal behaviour, but
to have acted ‘distrusting the market conditions’ ”.

20. Dec 10 Dec 11 Dec 12 Dec 13 Dec 14
Barclays 5.19 5.19 5.15 5.05 5.03
FIX-USD 5.13 5.11 5.06 4.99 4.97
Second
Highest
5.15 5.14 5.10 5.02 4.98
In the fourth quarter of 2008, Barclays continued to submit high rates,
believing other banks’ contributions were unrealistically low.
Barclay’s senior management to instruct the submitters to lower the
rates.

21. FSA: operationally independent from the
government of the United Kingdom
Not funded by the government of the United
Kingdom. It is entirely funded by the firms (it)
regulate(s)

22. opportunity
of
manipulation
the lack of
independence
and oversight
potential lack
of sanctions to
deter individual
actors

23. The Deputy Governor of the Bank of England Paul Tucker to
contact Barclays CEO Bob Diamond.
Tucker showed concerns on Barclays submissions. In the wake of
the scandal, Tucker admitted his concerns that Barclays was
having liquidity problems and – like RBS, HBOS and Lloyds –
would require an emergency bailout.

24. A senior Barclays treasury manager informed the BBA in a
phone call that Barclays had not been reporting accurately.
But he defended the bank, saying it was not the worst
offender:
"We're clean, but we're dirty-clean, rather than clean-clean."
"No one's clean-clean," the BBA representative responded
--CFTC

25. There is significant evidence of a widespread ‘sales culture’ which rewarded
staff for aggressively promoting financial products, irrespective of risk and
customer needs.(Spicer et al, 2014)
Bankers in a wide range of different organisations shared a set of routines,
rituals, values and sets of assumptions about the world. (Spicer et al, 2014)
The strategic goals of the banks were focused on generating short term
returns to shareholders.

26. Effects of LIBOR scandal :
 Barclays bank has had to pay nearly $453 million dollars in penalties to
U.S. and U.K. regulators despite receiving an estimated 30 percent discount
on its penalties in exchange for cooperating fully with the authorities and
ongoing investigation. (Council on Foreign Relations, 2017)
 More than 40 suits have been filed related to LIBOR manipulation
including NCUA lawsuit , Fannie Mac lawsuit , Freddie Mac lawsuit and
Berkshire Bank. (Pressreader.com, 2017)
 Barclays CEO Bob Diamond and Rabo Bank CEO Piet Moerland were
forced to opt out , more than one hundred traders and brokers were fired
and suspended .

27.  In 2015 ,Uk Serious Fraud office (SFO) has charged twelve
people for manipulating LIBOR and they were sentenced to
14 years in prison.
 In 2012 Greg Clark the financial secretary confirmed that
UK will implement the recommendation's laid out in
Review entirely . (Gov.uk, 2017)

28. (Online survey of 103 respondents from 44 identifiable
banks across the globe by LEPUS) (bobsguide, 2017)
57%, believe
that the rigging
of the LIBOR
rate has been
pervasive in the
banking industry
(Compliancy-
services.co.uk, 2017)
43%, believe that
weak regulation of
the way in which
LIBOR rates are set
is the issue that lies
at the heart of the
recent scandal
60% of respondents
believe that
regulators were
aware of rate
manipulation but
tolerated the practice
and allowed it to
continue to preserve
confidence in
financial markets
Majority of them
want the setting of
LIBOR mechanism
to be revised

29. Finally who were responsible for LIBOR scam ??
INTERNAL FACTORS EXTERNAL FACTORS
• Senior executives
 Inadequate control
system
 Confusing
Internal staff
• Senior executives
 Outside
pressure
 Supervision
agencies

30.  Council on Foreign Relations. (2017). Understanding the Libor Scandal. [online] Available at:
https://www.cfr.org/backgrounder/understanding-libor-scandal [Accessed 20 Jul. 2017].
 Pressreader.com. (2017). PressReader.com - Connecting People Through News. [online] Available
at: http://www.pressreader.com/usa/the-washington-post/20131101/281840051419842 [Accessed
20 Jul. 2017].
 Gov.uk. (2017). HM Treasury - GOV.UK. [online] Available at:
https://www.gov.uk/government/organisations/hm-treasury [Accessed 20 Jul. 2017].
 Compliancy-services.co.uk. (2017). Libor-fixing was 'pervasive', according to report. [online]
Available at: http://www.compliancy-services.co.uk/news/article/2202/libor-fixing-was-pervasive-
according-to-report [Accessed 20 Jul. 2017].
 bobsguide. (2017). Lepus Publishes Report on Industry Opinions on the LIBOR Rate Manipulation
Scandal. [online] Available at: http://www.bobsguide.com/guide/news/2012/Sep/17/lepus-publishes-
report-on-industry-opinions-on-the-libor-rate-manipulation-scandal/ [Accessed 20 Jul. 2017].
 Spicer et al, A report on the culture of British retail banking, 2014
 Enrico er al, Corporate Culture and Frauds: A behavioural Finance Analysis of the Barclays-LIBOR
Case, 2013
 Ian W. Jones and Michael G. Pollitt, how UK banks are changing their corporate culture and
practice following the financial crisis of 2007-08, 2016
 BBC news, Timeline: LIBOR-Fixing Scandal, Access at: http://www.bbc.co.uk/news/business-
18671255
 Mendonca, M. (2001). Preparing for ethical leadership in organizations. Canadian Journal of
Administrative Sciences, 18, 266–276

31. • Aldrick P., 2012. “How Bob Diamond got it wrong”, The Telegraph.
• BBC, 2012. “Barclays: FSA regulator criticises ‘culture of gaming’”.
• Financial Services Authority, 2012. Final Notice.
• Cervellati, E.M. et al, 2013. “Corporate Culture and Frauds: A Behavior Finance Analysis of the
Barclays-LIBOR Case”.
• Ahmed A., Protess B.,2012. “Banks in Libor Inquiry Are Said to Be Trying to Spread Blame”, NY
Times, August 5, 2012.
• Bass, K. et al. 1998. “ The Moral Philosophy of Sales Managers and its Influence on Ethical Decision
Making”.
• Schminke, M. et al. 2005. “The effect of leader moral development on ethical climate and employee
attitudes”. Available at
• Imf.org. (2017). Back to Basics: What Is LIBOR? - Finance & Development, December 2012. [online]
Available at: http://www.imf.org/external/pubs/ft/fandd/2012/12/basics.htm [Accessed 22 Jul. 2017].
• BBC News. (2017). Libor: What is it and why does it matter? - BBC News. [online] Available at:
http://www.bbc.co.uk/news/business-19199683 [Accessed 22 Jul. 2017].
• the Guardian. (2017). Explainer What is Libor?. [online] Available at:
https://www.theguardian.com/business/2007/sep/01/2 [Accessed 22 Jul. 2017].
 Rosenberg, Y. (2017). Libor-gate Explained: Why Barclays’ Scandal Matters. [online] The Fiscal
Times. Available at: http://www.thefiscaltimes.com/Articles/2012/07/06/Libor-gate-Explained-Why-
Barclays-Scandal-Matters [Accessed 22 Jul. 2017].