News / Europe

British Banking Scandal Likely to Spread

A view of Barclays headquarters at London's Canary Wharf financial district,  July 3, 2012.A view of Barclays headquarters at London's Canary Wharf financial district, July 3, 2012.
x
A view of Barclays headquarters at London's Canary Wharf financial district,  July 3, 2012.
A view of Barclays headquarters at London's Canary Wharf financial district, July 3, 2012.
TEXT SIZE - +
A scandal over a major British bank unfairly manipulating interest rates threatens to engulf more major banks around the world.  The case has already seen Barclays Bank pay a huge fine, sparked a flurry of investigations and hearings, and might result in changes in laws that govern financial firms.  

Impact

Barclays is one of 18 banks that help set a daily benchmark for many interest rates around the world by reporting what they expect to pay to borrow money.  The result is called the “LIBOR” which stands for "London Interbank Offered Rate."  

White-collar crime expert and former Department of Justice attorney Michael Weinstein says LIBOR has a huge impact on global commerce.

“It is fair to say it is not millions, it's not billions, it's trillions of dollars impacted by the LIBOR rate.  So the impact is not only domestic here in the United States, but globally and internationally,” Weinstein said.

Some of the efforts to manipulate interest rates occurred during the financial crisis, when investors, depositors, other banks, and regulators were worried about the financial strength of banks.

Barclays paid a fine of around $450 million for, among other things, lying to rate-setting officials by saying they were paying a lower interest rate than they actually were.

Pace University expert on corporate governance, John Alan James, says Barclays misled officials because a low interest rate is a vote of confidence in a borrower by a lender.

“They come in low and it shows that they are stronger than they really are,“ James said.

On other occasions, Barclays’ officials falsely said the interest rate they had to pay was higher than it actually was, in an effort to make money on investments that were essentially a bet that the LIBOR would rise.

Both actions hurt consumers.

Manipulation

Manipulating the LIBOR interest rate higher means people were unfairly forced to pay more on mortgages, student loans and other transactions.   And manipulating the interest rate lower unfairly cut the returns paid to people who rely on savings and investments with interest rates tied to LIBOR rates.  

Weinstein says investigations are underway in a number of countries and the scandal could spread widely.

“I think you are going to see almost all of the world’s major banks get hit with this to some degree.”

He adds he expects governments and regulators to tighten rules and supervision of banks in response.

But Hofstra University finance professor Anoop Rai says lawmakers and regulators must strike a careful balance; too little regulation allows too many dishonest practices, but too much supervision slows commerce and hurts the economy.

“It is very difficult to get an optimal set of regulations, too much or too little, said Rai. "And over time, markets forget, and we see this recurring behavior so many times,
one just has to scratch their head and say how do we get buyers to beware.”

Nevertheless, Pace University's John Alan James expects that some actual, constructive change will come from this scandal because, as he puts it, “This is too big to put under the rug. “

You May Like

Multimedia Relatives of South Korean Ferry Victims Fire at Authorities

46 people are confirmed dead, but some 250 remain trapped inside sunken ferry More

War Legacy Haunts Vietnam, US Relations

$84 million project aims to clean up soil contaminated by Agent Orange More

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends More

This forum has been closed.
Comment Sorting
Comments
     
by: Raymond Murdock from: Washington DC
July 14, 2012 11:55 AM
For some time this part was left in free alberdio banks that handle only the economies of each country. Inadmissible. Speaking of Economy and Banks is like talking about water and oil. Do not mix. Much less let them engage in Economy. The question is why does this happen? Overconfidence. Overestimation of honesty. Drivers or inspections obsolete. Conspirators or groups to commit unlawful. Loopholes. Jurisprudence which validates fraudulent acts without exemplary punishment. Free dubious agreements and guarantees to escape or avoid justice. Too obvious and made ​​worse by lack of something elemental?.-


by: Lorain from: USA
July 11, 2012 2:46 PM
Olympics in Britain... who want to go and see London...??? might as well stay in Cairo or Baghdad... UK has become Muslime

In Response

by: Mary from: USA
July 11, 2012 9:33 PM
London's a fascinating city and one of the most interesting places I've ever been; you're doing youself no favors by so blithly writing it off.
Your demographics are seriously off, by the way. The vast majority of the British are at least nominally Christian and secular in practice. No one's installing Sharia over common law there anytime soon.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid