July 6, 2012
LIBOR is the London Interbank Offered Rate. It is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It also effects many adjustable rate mortgages and very importantly it is used to price trillions of dollars in notional value of derivatives.
Barclays Chief Executive Bob Diamond resigned on Tuesday. Barclays' management has come under scrutiny since the bank was fined $453 million last week by U.S. and British regulators for submitting false reports on interbank borrowing rates between 2005 and 2009. Much of that activity originated from traders in Barclays Capital, the investment banking division which Diamond headed at the time.
"Either you were complicit, grossly negligent or incompetent" John Mann, a Labour lawmaker, told Mr. Diamond. After a pause Mr. Diamond asked "Is there a question?" From yesterday morning's WSJ. No Bob, there is no question - apparently Mr. Mann felt like stating the facts. Not a lot of wiggle room when those are your options.
It certainly is interesting, right around Independence Day in the states, to see just how parallel the banking industry in the UK and in the United States run to each other. My sense is we are just beginning to witness the train wreck in how arbitrary the loan rates that banks would charge each other in and around the financial crisis were set. I would say "much more art than science."
Just one more in the hits that just keep coming out of the banking industry. Boy it really doesn't instill a tremendous amount of confidence in the guys at the top making the 'hard' decisions.... oh and by the way, a tremendous amount of money in compensation for themselves either.
Doug Hendee, CFP(R)
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