Barclays will pay $100 million to settle multi-state charges accusing it of manipulating the Libor interest rate benchmark, New York Attorney General Eric Schneiderman said Monday.
The settlement covers charges brought by 44 states in connection with claims the bank conspired with other major banks to manipulate the London Interbank Offered Rate, or Libor.
The Libor is based on the interest rates leading banks charge when loaning money to other banks overnight. It is a benchmark interest rate used in financial markets around the world, and the primary benchmark for short-term interest rates globally.
The Libor rate is written into standard derivative and loan documentation, used for a range of retail products, such as mortgages and student loans, and is the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges. It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates.
In 2012, Barclays paid $452 million in penalties to settle similar charges with the U.S. Justice Department and Commodity Futures Trading Commission, or CFTC.
The CFTC says that Libor trades accounted for nearly a billion dollars worth of activity on U.S. exchanges in 2011. More than $220 trillion in derivatives were indexed to the Euribor during the same period, according to the Bank for International Settlements. Euribor stands for European Interbank Offered Rate.
Barclays admitted that it submitted artificially low rates to the British Banker’s Association, which publishes Libor, to hide rising loan costs and benefit derivatives positions its traders took based on the benchmark rates.
The CFTC’s settlement order with Barclays recounts several requests sent from swaps traders to “submitters,” Barclays employees who submit the bank’s daily Libors and Euribors.
One states, “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”
Such requests occurred nearly daily, and submitters often responded with messages such as “always happy to help,” “for you, anything,” or “Done … for you big boy,” the CFTC said.
Barclays traders also reached beyond their fellow employees, asking traders at other banks on the Libor and Euribor panels to make submission requests favorable to their trading positions, the Justice Department said in its settlement agreement.
Collectively, Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland have paid more than $5 billion to global regulators to settle charges related to Libor manipulation, as well as foreign currency manipulation. Deutsche Bank was fined a record $2.5 billion.
Barclays is the first of these banks to reach a settlement with state attorneys general.
Four ex-Barclay’s traders were sent to prison last month for their role in the Libor-rigging conspiracy.
New York Attorney General Eric Schneiderman said in a statement, “There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes big banks and other financial institutions that engage in fraud or impair the fair functioning of financial markets.”
The 44 states benefitting from the $100 million settlement are: Alabama, Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.