Barclays Libor Scandal Report

This report examines the Barclays Libor scandal, focusing on the manipulation of the London Interbank Offered Rate (LIBOR) by Barclays plc. The report details how Barclays, under pressure from derivative traders, submitted false LIBOR rates to benefit their trading positions. This action violated ethical business principles and led to significant fines from UK and US regulators. The report analyzes the causes and effects of the scandal, highlighting issues such as lack of ethical leadership, inadequate risk management, and the short-term incentives driving unethical behavior. The consequences included a loss of trust, reputational damage, and contribution to the wider financial crisis. The report concludes with recommendations for improved transparency and ethical conduct in the financial industry, emphasizing the importance of strong leadership and robust regulatory oversight to prevent similar scandals in the future.

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Introduction
Barclays plc was accused of setting the interest rate of the Libor in the US, which was
higher than the other panel banks. It was against the ethical leadership to use the power to
create imbalance in the financial markets. The company was charged with fines from the UK
regulators and even from the US Department of Justice (Treanor, 2016).
Issues of the case study
Voidance of Business Principles
Financial services authority (FSA) is a key regulator of Barclays that observes the
LIBOR rate manipulation. The company took this step to hide its borrowing costs from the
outside market for the benefit of derivative traders and to avoid inquiry from market.
Barclays lacked control and risk management to hide the fake submission of LIBOR rate.
FSA did not take any disciplinary action at the initial stage but later on posed hefty amount as
fines on the company after seeing that they were not conducting their business operations
diligently for a certain span of time (Rose & Sesia, 2014, p. 7). Moreover, Barclays infringed
the Commodity Exchange Act but cooperated with FSA in the case investigation.
LIBOR Rate Manipulation
Manipulation of the LIBOR rates was not only the reflection of the company decision
but derivative traders with short term maturities from London and New York repeatedly
demanded it. Derivative traders used to demand frequent rate changes to the money market
desk for their personal gain (Rose & Sesia, 2014, p. 8). Fixed and floating interest rate swap
affects the floating player with higher and lower payment with the consecutive changes in the
LIBOR rates in over the counter (OTC) trading. Other banks were also pressurized to adjust
their rate with the Barclays’ manipulated rate. Barclays’ never told the derivative traders that

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they were asking for unethical manipulation and passed the requests to the money market
desk.
Financial Crisis due to high and low bid dilemma
Granting unlimited requests from the short term traders and the implementation of
demands risked the security of other entities essentially as investment firms, governments,
corporations, and households were linked to Barclays plc. The benefits are not equal due to
the change in LIBOR interest rates. Barclays’ consulted FSA after they were exposed to
media speculations regarding financial standards, which started an internal conflict with the
senior and junior authorities resulting in higher LIBOR rates. The steady rise of LIBOR rates
surpasses rest of the panel banks asserting financial crisis. The US faced crisis in money
market and hence resulted in stagnation of all the fund holdings and the credit markets and it
heavily impacted the UK money markets as well (Rose & Sesia, 2014, p. 10).
Causes and effects
Robert Diamond is designated as the CEO of Barclays plc to take account of foreign
exchange business and debt markets. He didn’t take any strict action to stop the traders’
manipulation over money market desk that voids the business principles. It further depicts
leadership faults resulting in an organization’s unethical framework (Brown & Trevino, 2006,
p. 602).
Barclays’ way of serving derivative traders was unethical in terms of serving only
their short term results (Mele et.al., 2107, p. 3). The company further lacked to think about
the difference in profit making for their varied businesses. It created losses in lowering the
LIBOR rate for some firms and reverses the result as it took the higher bid.
The nature of short term incentive is provocative for the derivative traders. Barclays
acted to lower the LIBOR rate to cater one genre of investors, thereby making them uncertain

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in money market. They tried to skip the media controversy for the unethical financial outlook
and led to the disastrous financial crisis over the US and the UK money market (Roulet,
2015, p.10).
Conclusion and Recommendations
LIBOR is a global benchmark associated with rate-setting process and inter-bank
lending. LIBOR rates should be transparent in accordance with the market data. LIBOR
authority should direct the banks through a proper code. The case of Barclays thus illustrated
the lack of company ethics and transparency with respect to disreputable leadership resulting
in nationwide financial crisis.

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References
Brown, M. E. & Trevino, L. K. (2006). Ethical leadership: A review and future directions.
The Leadership Quarterly, 17, 595-616.
Mele, D., Rosanas, J. M. & Fontrodana, J. (2017). Ethics in finance and accounting:
Editorial introduction. J Bus Ethics, 140, 609-613.
Rose, C. S. & Sesia, A. (2014). Barclays and the LIBOR scandal. Boston: Harvard
Business School Publishing.
Roulet, T. (2015). ‘‘What good is Wall Street?’’ Institutional contradiction and the
diffusion of the stigma over the finance industry. J Bus Ethics, 130, 389-402.
Treanor, J. (2016). Barclays bank reaches $100m US settlement over Libor rigging
scandal. Retrieved from
https://www.theguardian.com/business/2016/aug/08/barclays-libor-100m-us-
settlement