Here is the letter sent by the Barclays Chief Executive to the Chairman of the Treasury Select Committee tonight. Excerpts are copied below .
The letter says that the attempted manipulation was done for two reasons:
- To benefit trading positions.
- More interestingly, in relation to the LIBOR setting process during the credit crisis. That was to attempt to reduce the market perception that Barclays was suffering higher funding costs than other banks.
The key question that the Barclays letter raises, but does not answer, is who took the “decision to lower submissions” in relation to that second reason. It seems ill-advised that Barclays has released a letter that so obviously poses this question but leaves it unresolved. The bank will be under pressure to provide an answer.
“The authorities’ [i.e the FSA, US DoJ, CFTC] findings highlight two major issues…It is vital to look at them separately as they are wholly unrelated.
The first issue is that Barclays traders attempted to influence the bank’s submissions in order to try to benefit their own desks’ trading position. This is, of course, wholly inappropriate behaviour. Barclays submissions should reflect the cost of interbank borrowing rather than individual traders’ positions. The interventions in question were typically on the short term one and three month rates relevant to the wholesale markets and not the longer term rates used to set, for example, retail mortgages. It is also important to note that these traders had no way of knowing whether or not their actions would ultimately benefit or detriment Barclays overall. They were operating purely for their own benefit.
This inappropriate conduct was limited to a small number of people relative to the size of Barclays trading operations, and the authorities found no evidence that anyone more senior than the immediate desk supervisors was aware of the requests by traders, at the time that they were made. Nonetheless, it is clear that the control systems in place at the time were not strong enough and should have been much better.
When the trader conduct was first discovered by more senior management, steps were immediately taken to stop it, and it was reported to the authorities. In addition, when the scale of the issue was understood, the bank took steps necessary to strengthen its systems and controls to prevent any repeat.
The second issue relates to decisions taken in relation to the LIBOR setting process during the credit crisis. The authorities found that Barclays reduced its LIBOR submissions to protect the reputation of the bank from negative speculation during periods of acute market stress. The unwarranted speculation regarding Barclays liquidity was as a result of its LIBOR submissions being high relative to those of other banks. At the time, Barclays opinion was that those other banks’ submissions were too low given market circumstances.
To be clear, Barclays encountered no liquidity problems through 2007 and 2008. The inaccurate speculation about potential liquidity problems in the two periods noted created a real and material risk that the bank and its shareholders would suffer damage. It was, as you will recall, a period of extraordinary turbulence and uncertainty. This raised questions for the bank about the integrity of the LIBOR setting process, and various individuals within Barclays raised issues externally about that, including with the British Bankers’ Association, Financial Services Authority, Bank of England and US Federal Reserve.
Even taking account of the abnormal market conditions at the height of the financial crisis, and that the motivation was to protect the bank, not to influence the ultimate rate, I accept that the decision to lower submissions was wrong.
…
Given the nature of the behaviours uncovered through these investigations, questions of accountability have rightly been raised. Following conclusion of the regulatory investigations, and yesterday’s public announcements, we are now completing a review of employee conduct for all of those involved. That process is rigorous and all appropriate options will be pursued for those who have a case to answer, ranging from the clawback or withholding of remuneration to being asked to leave the bank.”
