Thursday, June 28, 2012

Bob Diamond confesses: Barclays falsified Libor to protect bank during crisis

As reported by the Telegraph's Harry Wilson,

Barclays chief executive Bob Diamond has admitted for the first time that the bank made a conscious decision to falsify Libor rates in order to protect the bank at the height of the financial crisis. 
The revelation in a letter to the Treasury Select Committee will put increasing pressure on Mr Diamond to reveal whether the decision was taken at board level. 
“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,” he stated. 
In the most detailed account so far on how the Libor rates were manipulated, Mr Diamond said fixing of Libor rates was carried out by individual trades and, separately, by the bank itself. 
He said traders attempted to influence the rate in order to benefit their own desks’ trading positions. The bank made the decision in order to protect shareholders’ interests, he said..... 
In the letter Mr Diamond appeared to try and defend elements of the practice by pointing the finger at other banks. 
Addressing the market turbulence at the height of the financial crisis he wrote: “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.” 
He also said individuals within the bank raised concerns about Libor rates with authorities including the FSA, Bank of England and US Federal Reserve.
The simple fact is that neither Barclays nor any other bank should ever be put in a position where they can and have an incentive to lie about their financial condition.  At the same time, no financial regulator should ever be put in a position where it might appear that they either encourage or condone a bank lying about its financial condition.

The only way to prevent either of these from occurring in the future is to require all banks to provide ultra transparency and disclose on an on-going basis their current asset, liability and off-balance sheet exposure details.

With ultra transparency, market participants have the facts and lying would be for no benefit.

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