Resisting Corporate Corruption, 3rd Edition

Case 4Fix the LIBOR Fix?

“The Libor rates are a bit of a fiction. The number on the screen doesn’t always match what we see now.” Treasurer, large City of London Bank

THE BANK OF ENGLAND (BOE) SITS ON THREADNEEDLE STREET IN THE CITY OF LONDON. Founded in 1694, it is the second oldest central bank in the world. Its formidable pillared facade has witnessed conflict with Napoleon, two World Wars, and its own nationalization in 1946. Now, it was witnessing a meltdown of the global financial system.

It was October 29, 2008. The Lehman Brothers bankruptcy one month earlier had set off a contagion. Since then, the U.S. government had moved to rescue AIG, Citigroup, Goldman Sachs, Morgan Stanley and a host of other institutions. America’s troubles were no comfort to the U.K. There financial authorities had already bailed out Northern Rock, a property lender. Other U.K. banking pillars were tottering. The Bank of England was especially worried about Barclays Bank. Paul Tucker, a member of the BOE’s Monetary Policy Committee, had scheduled a call with Bob Diamond, Barclays’ head of investment banking. The call would take place in 10 minutes. Tucker glanced over his staff memo of talking points for the call.

As the memo made clear (Attachment 1), the focus for the call was Barclays’ rate submissions for the daily LIBOR fixing. LIBOR, or the London Interbank Offered Rate, is actually a suite of interest rates used by an enormous volume of global financial instruments. LIBOR rates are supposed ...