Barclays and other banks use the London interbank offered rate to determine the interest rates they charge for interbank loans. These loans range in duration from an overnight transaction to a loan that can be due in two years. The customer of each bank involved is affected by the interbank or LIBOR rate since a loan processed for a banking patron is usually funded by some sort of borrowed monies from either other banks, insurers, or bank investors.
As the London interbank rate was determined to be probably manipulated, the crisis that developed began because of the interlocking nature of most loans. The determination that bank loans need to be more transparent was one result. Another consequence was that the loans themselves needed to be more liquid. More of a direct lending procedure was started and more government oversight was, also, determined to be necessary.
Barclays was noted to have probably manipulated the interbank interest rate in order to gain profits. In addition, the new interest rates seemed to have presented more of a solvent portrait during the worst of the modern day credit crisis. The bank was eventually fined for such tactics. Since so much of the current economic health of the global banks is inter-dependent, other banks have undergone inquiries into any such manipulations within their accounts, also.
THE INQUIRIES INTO BARCLAYS ACCOUNTS
The inquiries into Barclays‘ accounts began as an obvious deviation from the normal business operations for their trading markets. Interest rate derivatives markets were performing unusually well. Some market traders were concluding that the published interbank rates could not be appropriate and even seemed inaccurate during the most critical years of the financial credit crisis. The finance regulators fined the bank for apparent manipulations of these interest rates. These fines were determined, however, after the significant profits were gathered from the interest rate manipulations. Tax payers were sent the bill, for the most part. One other banking institution took a drastic measure and froze millions of account holders’ monies.
The probe into Barclays business seems to have begun with a series of emails. These emails were asking specific questions about derivative accounts that concerned the interbank rate that determines how these accounts profit or gain monetary value. Questions and answers were given about changing certain specific data. When these email accounts were analyzed, a pattern emerged that seemed to be giving directives to change an interbank rate for the sole purpose of gaining profit. The flaw in the trading system during this period of time seemed to be the fact that banks could estimate their own interbank rates. These rates are to be selected by a team of banking officials. This particular oversight did not occur, however.
In 2006, the team at Barclays were said to be unaware of the ramifications that could occur if interbank rates were changed without other validations being considered. What happened, however, is that some of the numbers were not accurate. Serious consequences happened after these banking actions. The inquiry in to what happened then sent the probe into the accounts of Barclays. The government officials determined that something out of the ordinary had happened, and this bank was fined.
THE RESULTS FOR BARCLAYS
Barclays and their employees have undergone many investigations. The emails were tracked and sent to a forensics lab for further study. The reputation of this bank has had to weather a certain type of perfect storm that only a few banking institutions have had to go through. The banking administration has not blamed this on a rogue trader. The bank itself has set the blame on itself. Some of the consequences may involve other penalties from customers that claim to be on the other side of such inappropriate trading.
Other banks may be in the cross-hairs of such a disaster. At least twelve other banking institutions are being looked at for interbank interest rate irregularities. Similar penalties and fines may be in the future for other banks with similar problems. The possibility that interbank-linked contracts may be involved in the lawsuit-phase of this calamity is daunting for any and all of the banking institutions. Specific areas of investigation include banks in the United States, Scotland, Switzerland, and another British institution. Some areas of forensic investigation include the bank-to-bank emails that seem to have transpired across several banking institutions. How or if the other banks were acting together remains to be seen. Who was involved is one area of inquiry. What the exact nature of the involvement was or the knowledge that each participant knew has yet to be determined.
FINES THAT HAVE BEEN IMPOSED
Lawsuits have begun for some of the possible participants in this catastrophe. The banking institutions that have been tied to some involvement with this are facing possibly heavy fines. The inquiries are not completed, however. Some of the blame has been placed on a banking system that may need restructuring.
RESTRUCTURING THE GLOBAL BANKING SYSTEM
Restructuring the global banking system may be more of a practical solution. With so many of the banking traders left to their own skills and expertise, it may be a measure of practicality to assist with this possible hole in the banking organization. If banks can manipulate rates for themselves, and then a rush is put on a trading desk or desks for performances that, in reality, can not be done, then a perfect storm may go ahead and go through. Not being able to predict the future of the economic downfall of the last several years seems to not sit well on one person’s shoulders or even in one industry’s lap.
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