Barclays scandal prompts furious public backlash in Britain

A scandal that has engulfed one of Britain’s biggest banks is expected to spread to more financial institutions, intensifying a furious public backlash against a banking culture charged with greed, incompetence – and now corruption.

The reputation of Barclays, Britain’s second-biggest bank by assets, was dragged through the dirt last week when it was fined a record $453 million by financial authorities in Britain and United States for attempting to manipulate the key London Interbank Offered Rate (LIBOR), which is a measure of lending rates between banks, and operates as a benchmark to price trillions of dollars in derivatives, mortgages, and bonds.

Barclays admitted that it had made "artificially low … submissions" – that is, lied, about the interest rate at which it was borrowing. Sometimes it lied about the rate to create the false impression that the bank was seen as a low-risk borrower by its peers, and at others it lied to manipulate the value of derivatives tied to LIBOR to generate short term trading profits.

Monday, Barclays’ chairman Marcus Agius resigned, saying “the buck stops with me.” That turned out to be untrue. Tuesday morning, Barclay's American chief executive, Robert Diamond, who had insisted he would hold onto his job while waiving his bonus, also quit.

Mr. Diamond, who ran Barclays’ investment banking arm when the rigging occurred, will be cross-questioned by a panel of parliamentarians on Wednesday about what exactly happened between 2004 and 2009 when the ruse was under way.

The government has launched a cross-party parliamentary inquiry into the scandal, with Tory Chancellor of the Exchequer George Osborne saying a “culture that had flourished in the age of irresponsibility” among bankers must come to an end. The opposition Labour party is calling for a wider-ranging independent investigation, much like the long-running Leveson inquiry, which is probing standards in the media following a scandal over journalists hacking into cellphone voicemails.

Whatever action the British government takes, more revelations are sure to follow. At least a dozen big banks are being investigated by global authorities – the UK’s Financial Services Authority (FSA) and, in the US, the Commodity Futures Trading Commission and the Department of Justice - over the rigging of the market.

Biggest disaster in recent times

The scandal is the latest hit for a banking system already heavily criticized for its role in the financial crisis. Since the banking crisis of 2008 – when institutions that had issued too many risky loans had to be bailed out to the tune of billions of dollars by taxpayers - banks have been routinely charged with incompetence.

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