Regulators Spoke, But What did Barclays Hear?


Barclays may have lost its chairman, chief executive and chief operating officer but the bank seemingly remains as defiant as ever about the Libor scandal.

Despite having paid huge fines, Barclays is still more or less insisting that other banks were far more active at manipulating interest rates and that its own financial crisis manipulations were the result of a misunderstanding stemming from communications with bank regulators.

Here's how Barclays described the miscommunication in its submission:

On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time…

Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.

Tucker will eventually face a parliamentary hearing about these communications, so we'll eventually learn more about this. But for now it seems that Felix Salmon's read is exactly right.

There isn’t a transcript of this conversation anywhere, but I can easily imagine Tucker saying something like this: “lots of senior Whitehall types are seeing the high rates you’re paying in the Libor market, and they’re asking me about it. I’m sure you don’t need my advice here, but you really shouldn’t be so high.” That’s a regulator doing what regulators should do — telling banks to get their act together and normalize their operations. What he meant, I’m sure, is that Barclays should do whatever it took to improve its reputation with other banks, so that they would lend to Barclays at lower rates.

That is to say, Tucker was telling Barclays that regulators were looking at its Libor submissions and concluding the market was growing increasingly skeptical about the health of the bank. Barclays was being told to take actions to restore its reputation with creditors. (See latest Libor and Treasury/Euro-Dollar Credit Spreads)

But Barclays, it seems, decided to short cut this health-restoration process by simply lowering the Libor submissions. It may have even believed this will do the trick: if we make it seem like the market has more confidence in us, the market will have more confidence. That is evidence of a somewhat cavalier attitude at some very high levels of the bank.

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