Osborne Pledges Powers to Pursue Criminal Probe Over Libor

Chancellor of the Exchequer George Osborne
Chancellor of the Exchequer George Osborne. Photographer: Chris Ratcliffe/Bloomberg

Chancellor of the Exchequer George Osborne said Britain’s financial regulator is looking at whether it can bring criminal charges over the attempt by banks to manipulate the inter-bank lending rate, or LIBOR, as he promised new laws to prevent market abuse.

Osborne said he couldn’t comment whether there are plans to prosecute executives at Barclays Plc or other banks after the London-based lender was fined $451 million for attempting to manipulate Libor. The Financial Services Authority will “use every power available to them,” he said.

“We are examining whether strengthening the criminal sanctions regime for market abuse and market manipulation is warranted, and if so, we will provide for these powers quickly,” Osborne told lawmakers in London today. Bringing criminal charges “is absolutely what the authorities are looking at.”

Serious Fraud Office investigators are in talks with the FSA over the rate-rigging scandal, Osborne said. He said the affair was “a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis.” Barclays Chief Executive Officer Bob Diamond has “serious questions to answer,” he said.

“It is clear that what happened at Barclays, and potentially other banks, was completely unacceptable, was systematic of a financial system that elevated greed above all other concerns, and brought our economy to its knees,” he said.

‘Deeply Concerning’

Diamond is under pressure from lawmakers to resign after Prime Minister David Cameron questioned the “deeply concerning behavior” at the bank and called for directors to explain how much they knew. Opposition leader Ed Miliband and London Mayor Boris Johnson demanded a criminal investigation.

Andrew Tyrie, the chairman of Parliament’s cross-party Treasury Committee, said he would summon Diamond to appear before lawmakers to account for the bank. Former chancellor Alistair Darling told the House of Commons that the FSA has powers to have any implicated executives fired from the bank.

At stake is the credibility of the decades-old Libor system and the securities and loan products that rely on it, ranging from an estimated $554 trillion in interest-rate contracts, according to the FSA, to mortgage and credit-card payments made by consumers around the world.

No Bonuses

Diamond and three lieutenants will forgo their bonuses as a result, Britain’s second-biggest bank by assets said in a statement yesterday. “A member of senior management” instructed Barclays’ Libor staff to lower their submissions to make them match other banks and dispel concern about the lender’s health, the U.S. Commodity Futures Trading Commission said.

Derivatives traders requested the false submissions in the Libor and Euribor setting process, as they were “motivated by profit and sought to benefit Barclays’ trading positions,” the FSA said. The settlements with the FSA, the CFTC and the U.S. Department of Justice are the first in an international investigation into whether banks tried to manipulate Libor to hide their true cost of borrowing.

Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc and Deutsche Bank AG are among firms that are being probed by regulators worldwide into how Libor is set.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE