When the UK Financial Services Authority slammed a 290 million pound fine on Barclays PLC, the controversy was just starting. The Banks retort set the kettle on fire, appearing on the Barclays official website through a statement alluding then-COO believed authorities had sanctioned fixing of Libor rates.
Pitching against the Bank of England (BOE) came at a huge personal cost for at least three of the Banks biggest names. On Tuesday, Barclays CEO Robert Diamond stepped down as CEO, along with Chief Operating Officer Jerry Del Missier while Bank President Marcus Agius will step down after finding a replacement for CEO, reported Bloomberg.
Diamond faced a barrage of questions from British MPs on Thursday, as calls for a broader judicial probe gathered momentum amongst opposition leaders in the UK.
Barclays PLC too has been rattled by the scandal and the ouster of its most senior managers. On Thursday, Moodys added to the Banks list of troubles by downgrading its outlook, saying "the disruption and political scrutiny caused by the Libor scandal and the ensuing departure of its chief executive, chairman and another senior executive could prompt the bank ultimately to change its business model" reported the Wall Street Journal.
Barclays is among the biggest universal banks of the world, providing retail banking services along with investment banking, advisory, wealth management and a host of other solutions to clientele that ranges from individuals to large corporations.
Prior to the eruption of this scandal the Bank was busy expanding in North America, plans which none other than the outgoing head honcho had conceived after Barclays bought out Lehman Brothers assets in North America.
Speculation is rife over the impact of a change in helmsmen, on the Banks future, especially regarding plans to forge ahead with the expansion of its investment banking division.
But, besides blowing in winds of change for Barclays and the veteran bankers who had headed the bank until recently, this controversy has also cast shadows on the efficacy of Libor, especially when liquidity in the financial sector dries up.
The benchmark rate is calculated by the British Bankers Association based on daily submissions by 16 of that economys biggest banks. Of these rates, the four lowest and four highest are ignored, while the average of the remaining eight is used to determine Libor.
The trouble for banks (especially during the financial slowdown of 2008) was that there were very few transactions taking place between different financial institutions, so determining rates was at best, ad hoc considering that the majority of prospective lenders and borrowers remained idle from the markets for extended periods of time.
While most prominent news dailies were busy blasting the Bank, editor Financial Post, Terence Corcoran unequivocally declares, "Barclays looks like the victim". Corcoran has pointed out that Barclays had warned multiple times in late 2008, that Libor submissions by other banks were unrealistically low and did not reflect market fundamentals accurately.
The outspoken editor has contended that British authorities should at least share blame for stiff arming Barclays to lower its rate submissions for Libor. Given that popular sentiment in the economies of the West is trending against big banks, Diamond and the gang may not find many sympathetic ears to their please.
However, the accuracy of Libor had always been debatable given that the calculation takes no account of the volume of trades executed at each of the rates submitted. The Barclays scandal may be the tipping point that eventually leads to a major overhaul of this mechanism for deriving the benchmark rate.

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