Lloyds Bank Fined a Meagre £218m over Libor Rigging Scandal

Lloyds Bank Fined a Meagre £218m over Libor Rigging Scandal

Put simply, Libor (London Interbank Offered Rate) is an average interest rate calculated via submissions of interest rates by the big banks in the City. The Libor rate is used by the banks to set the cost of borrowing money from one another, and is more widely used as a benchmark to determine rates on loans around the world.

Scandals emerge when banks get greedy and try to rig the Libor rates to suit their own needs. There have been various different kinds of Libor scandal; this Lloyds misconduct is certainly not the first incident! In 2012, a former trader published an article in the Financial Times alleging that Libor manipulation had been common practice since 1991.

A month before the article was published, Barclays was forced to pay $453 million to American and British authorities in the light of allegations it had manipulated key interest rates between 2005 and 2009. In February 2013, Royal Bank of Scotland was fined £390 million by American and British regulators for its part in the Libor rigging scandal.

So what’s new?

Good question. On the face of it, Lloyds is merely following in the footsteps of its fellow City firms in settling claims for Libor rigging. After all, this is the seventh joint penalty handed out by US and UK regulators in connection with Libor rigging.

However, under closer scrutiny Lloyds has managed to break new ground (or stoop to new lows). Following much talking and many probes, it was decided that a new independent regulator should administrate the Libor rate – in February 2014, ICE Benchmark Administration took the helm. This move was designed to tighten up regulation and increase transparency in the Libor benchmark setting process.

Unfortunately, yet hardly surprisingly, Lloyds found new ways to roll around in the mud. The Financial Conduct Authority stated that what set Lloyds apart from the previous Libor-riggers was its abuse of the government backed Special Liquidity Scheme.

The Special Liquidity Scheme was set up during the financial crisis by the Bank of England, offering super-cheap loans to troubled banks for a fee. Lloyds had the audacity to manipulate short term rates, thus reducing the fees payable for the super-cheap Bank of England loans that had been offered especially to try to help the impotent banks. I’m sure you’re as bemused as we are!

When it rains it drizzles

Lloyds won’t be too upset. Analysts at Deutsche Bank expected half-year profits to hit £3.48 billion after strong growth. This is certain to be undermined by the £218 million fine as well as a further £500 million provision for PPI claims but this is unlikely to see Lloyds Banking Group fall to its knees. The heavy damage to the firm’s reputation may be a bigger blow.

But, as suggested by ResPublica thinktank, bankers could always swear an oath not to rip off their customers…

Libor Scandal