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LIBOR fixing – the timeline

It’s the
end of the first week of January and we want to end on an upbeat note.  So
what do we get as this morning’s headlines?  A whole heap of dross about
LIBOR, a sprinkling of stuff about mis-selling insurances and illegal mortgage
foreclosures (read things worth reading
every day if you want to keep up with these headlines).

Oh shoot.

not a great way to start the year but then you have to remember that this is
nothing to do with 2013 or the future, except in the way in which regulators
will want to change the way they regulate the markets.  No, the daily
headlines all relate to issues raised before 2010.

The most heinous
of these issues that will dog the industry deadlines for most of this year will
be LIBOR fixing.


the London Inter Bank Offered Rate.

This is
the rate at which banks in London lend money to each other for the short-term
in a particular currency, with a new rate calculated every morning by Thomson
Reuters based on interest rates provided by members of the British Bankers

fixing took place from 2005 to 2010, although it started a long-time before
this as a gentlemanly protocol for agreeing the rates at which banks buy and
sell to each other, and at what rates. 

It’s fairly
obvious that LIBOR was open to manipulation from an early time, as it is purely
a rate set by a small clique of traders.  The reason why this became
important is that the gentlemanly method of setting rates became the global
standard for rate setting, resulting in all financial contracts and pretty much
the whole financial market being based upon this morning agreement between a
roundtable of the world’s largest banks.

of dollars of interest rates tied to LIBOR agreements, influencing the way in
which everything from government sovereign debt to our credit card rates were

problem of a small group of banks being able to fix such rates did not come to
light however until it became absolutely necessary, and that was when Lehmans

And the
problem was raised by Barclays who were first mover to co-operate with the authorities
which is why they got a fine of less than $500 million, whilst most will get
fines of over a billion.

So, in
the interests of starting the year with a clear view of hindsight, here’s the
timeline for LIBOR as garnered from the Telegraph , Guardian and BBC.


The British
Bankers' Association (BBA) publishes the first official Libor rates in dollars,
sterling and yen, meeting demand for global benchmarks from financial markets.


are actively engaged in LIBOR fixing

As early
as 2005 there was evidence Barclays had tried to manipulate dollar Libor and
Euribor (the eurozone's equivalent of Libor) rates at the request of its
derivatives traders and other banks.

was widespread, involving staff in New York, London and Tokyo as well as
external traders.

January 2005 and June 2009, Barclays derivatives traders made a total of 257
requests to fix Libor and Euribor rates, according to a report by the FSA.

Barclays trader told a trader from another bank in relation to three-month
dollar Libor: "duuuude… what's up with ur guys 34.5 3m fix… tell him
to get it up!".


alerts US regulators about its concerns that other banks are submitting
dishonestly low interbank rates.

From as
early as 28 August, the New York Fed said it had received
mass-distribution emails that suggested
that Libor submissions were being set unrealistically low
 by the

On 28
, a senior submitter at Barclays wrote in an internal email that
"Libors are not reflecting the true cost of money", according to the

In December,
a Barclays compliance officer contacted the UK banking lobby group British
Bankers' Association (BBA) and the FSA and described "problematic
actions" by other banks, saying they appeared to be understating their
Libor submissions, according
to US regulator the Commodity Futures Trading Commission (CFTC)

On 6
, a Barclays compliance officer contacted the FSA, according to the
FSA report, to express concern about the Libor rates being submitted by other
banks, but did not inform the FSA that its own submissions were incorrect,
instead saying that they were "within a reasonable range".

said that the same compliance officer then told Barclays senior management that
he told the FSA "we have consistently been the highest (or one of the two
highest) rate provider in recent weeks, but we're justifiably reluctant to go
higher given our recent media experience", and that the FSA "agreed
that the approach we've been adopting seems sensible in the

In early
, the CFTC said that the Barclays employee responsible for
submitting the bank's dollar Libor rates contacted it to complain that Barclays
was not setting "honest" rates.

employee emailed his supervisor about his concerns, saying: "My worry is
that we (both Barclays and the contributor banle panel) are being seen to be
contributing patently false rates.

are therefore being dishonest by definition and are at risk of damaging our
reputation in the market and with the regulators. Can we discuss urgently

On 6
 a Barclays compliance officer contacted the FSA about
concerns over the levels that other banks were setting their US Libor rate.
This was made after a submitter flagged to compliance his concern about
mis-reporting the rate. Compliance informed the FSA that "we have
consistently been the highest (or one of the two highest) rate provider in
recent weeks, but we're justifiably reluctant to go higher given our recent
media experience".

He also
reported that the FSA "agreed that the approach we've been adopting seems
sensible in the circumstances, so I suggest we maintain status quo for

In a
phone call on 17 December a Barclays employee told the New
York Fed that the
Libor rate was being fixed at a level that was unrealistically low


On 11 April a New York Fed official queried a
Barclays employee in detail as to the extent of problems with Libor reporting.
The Barclays employee explained that Barclays
was underreporting its rate
to avoid the stigma associated with being an
outlier with respect to its Libor submissions, relative to other participating

On 16 April, the Wall Street
Journal published a report
that questioned the integrity of Libor.

Around this time, according to the CFTC, a senior
Barclays treasury manager informed the BBA in a phone call that Barclays had
not been reporting accurately. But he defended the bank, saying it was not the
worst offender: "We're clean, but we're dirty-clean, rather than

Bank of
England emails 2008

download Paul Tucker – set 1[132KB]

download Paul Tucker – set 2[216KB]

"No one's clean-clean," the BBA
representative responded.

According to the FSA, following the Wall Street
Journal report, Barclays received communications from the BBA expressing
concern about the accuracy of its Libor submissions. The BBA said if the media
reports were true, it was unacceptable.

On 17 April, a manager made comments in a
call to the FSA that Barclays had been understating its Libor submissions:
"We did stick our head above the parapet last year, got it shot off, and
put it back down again. So, to the extent that, um, the Libors have been
understated, are we guilty of being part of the pack? You could say we are…
Um, so I would, I would sort of express us maybe as not clean clean, but clean
in principle."

In late April officials from the New York
Federal Reserve Bank – which oversees the banks in New York – met to determine
what steps might be taken to address the problems with Libor, and notified
other US agencies.

On 6 May the New York Fed briefed senior
officials from the US Treasury in detail, and thereafter sent
a further report on problems with Libor

The New York Fed officials also met with BBA
officials to express their concerns and establish in greater depth the flaws in
the Libor-setting process.

On 29 May, Barclays agreed internally to tell
the media that the bank had always quoted accurate and fair Libors and had
acted "in defiance of the market" rather than submitting incorrect
rates, according to the FSA.

In early June, Tim Geithner, who was the head
of the New York Fed at the time, sent Bank of England governor Sir Mervyn King,
list of proposals to to try to tackle Libor's credibility problem

They included the need "to eliminate the
incentive to misreport" by protecting the identity of the banks that
submitted the highest and lowest rates.

Sir Mervyn and Mr Geithner, now US Treasury
Secretary, had discussed the matter at a central bankers' gathering a few days

Shortly afterwards, Sir Mervyn confirmed to Mr
Geithner that he
had passed the New York Fed's recommendations onto the BBA
soon afterwards.

concerns about Libor

download June 2008 emails to/from Bank of England about New York Fed's concerns[270MB]

Spring: The
BBA prepares a review of Libor, later described by the Bank of England's deputy
governor Paul Tucker as "tremendously
important because of the eroding credibility of Libor"
. The Bank
wanted Libor to reflect actual rates, not subjective submissions. Mr Tucker
rang the banks stressing the review should be carried out by senior
representatives, not the junior people normally sent to sit on the BBA

On 10 June, the BBA published a consultation
paper seeking comments about proposals to modify Libor. "The BBA proposes
to explore options for avoiding the stigma whilst maintaining
transparency," it said. Barclays contributed comments but avoided
mentioning its own rate submissions.

On 5 August, the BBA published a
feedback statement on its consultation paper
, and concluded that the
existing process for submissions would be retained.

Libor rates
spike after the collapse of Lehman Brothers at the height of the global
financial crisis. Rate setting at the time is central to investigations of

In September, following the collapse of
Lehman Brothers, the Bank of England had a conversation with a senior Barclays
official, in which the Bank raised questions about Barclays' liquidity position
and its relatively high Libor submissions.

Diamond's notes of phone conversation with Paul Tucker

to then-chief executive John Varley on 30/10/2008. Copied to Jerry del Missier.

Date: 29 October 2008

Further to our last call, Mr Tucker reiterated that
he had received calls from a number of senior figures within Whitehall to
question why Barclays was always toward the top end of the Libor pricing. His
response was "you have to pay what you have to pay". I asked if he
could relay the reality, that not all banks were providing quotes at the levels
that represented real transactions, his response "oh, that would be

I explained again our market rate driven policy and
that it had recently meant that we appeared in the top quartile and on occasion
the top decile of the pricing. Equally I noted that we continued to see others
in the market posting rates at levels that were not representative of where
they would actually undertake business. This latter point has on occasion
pushed us higher than would otherwise appear to be the case. In fact, we are
not having to "pay up" for money at all.

Mr Tucker stated the levels of calls he was
receiving from Whitehall were "senior" and that while he was certain
we did not need advice, that it did not always need to be the case that we
appeared as high as we have recently.

On 13 October, the UK government announces
plans to pump billions of pounds of taxpayers' money into three major banks,
effectively part-nationalising Royal Bank of Scotland (RBS), Lloyds TSB and

A week later, on 21 and 22 October, Paul
Tucker and senior government official Sir Jeremy Heywood discussed why Libor in
the UK was not falling as fast as in the US, despite government action. Sir
Jeremy also asked why Barclays' borrowing costs were so high. "A lot of
speculation in the market over what they are up to," he says in an email.

In subsequent evidence to the Treasury
Select Committee
Mr Tucker later suggests there was widespread concern at
this time that Barclays was "next in line" for emergency government
help. He was in regular contact with Bob Diamond, emails show.

On 24 October a Barclays employee tells a New
York Fed official in a telephone call that the
Libor rate is "absolute rubbish"

On 29 October Paul Tucker and Bob Diamond –
head of Barclays' investment bank at the time – speak on the phone. According
to Mr Diamond's account of the conversation
, emailed to colleagues the next
day, Mr Tucker said senior Whitehall officials wanted to know why Barclays was
"always at the top end of Libor pricing".

According to the Barclays chief executive, Mr Tucker
said the rates "did not always need to be the case that we appeared as
high as we have recently". Mr Tucker later said that gave the "wrong
impression" of their conversation and said he did not encourage Barclays
to manipulate its Libor submissions.

Following this discussion with the Bank of England,
Barclays instructed Libor submitters to lower the rate to be "within the

On 17 November, the BBA issued
a draft document
about how Libor rates should be set and required banks to
have their rate submission procedures audited as part of compliance. The final
paper would be circulated on 16 July 2009.


On 2 November the BBA circulated guidelines for all
contributor banks on setting Libor rates in the same manner. Barclays made no
changes to its systems to take account of the BBA guidelines.

In December Barclays started to improve its systems and
controls but ignored the BBA's guidelines. Until 2009 the bank did not have a
formal Chinese wall between the derivatives team and the submitters.


Financial Services Authority (FSA) launches an investigation into Barclays as
part of a global probe into the industry over allegations of interest rate

In June, Barclays circulated an email to
submitters that set out "fundamental rules" that required them, for
example, to report to compliance any attempts to influence Libor submissions
either externally or internally. It also prohibited communication with external
traders "that could be be seen as an attempt to agree on or impact Libor


Aug 2011 - Discount brokerage and
money manager Charles Schwab Corp files lawsuits accusing 11 major banks of
conspiring to manipulate Libor.

In late 2011,
Royal Bank of Scotland sacked four people for their alleged roles in the
Libor-fixing scandal.


22/3 June

Bob Diamond learns of emails sent by dodgy traders.
He later says reading them made him feel "physically ill" and that it
was the first he knew of trader misconduct.

27 June

The banking industry is engulfed in a fresh scandal
after Barclays pays £290m to settle claims that it used underhand tactics to
try to rig financial markets. The penalties from UK and US regulators, who have been
investigating for several years, include a record £59.5m fine from the FSA, and
follow allegations it manipulated Libor and Euribor interbank lending, which
govern the rates at which banks are prepared to lend to each other in the
wholesale money markets.

In the depths of the financial crisis, Barclays gave
false information about the interest rates it had to pay to borrow money in an
effort to paint a false picture of its health to markets. Diamond, who was in
charge of Barclays Capital at the time the breaches occurred between 2005 and
2009, apologises and says he and three other key executives will waive their
bonuses for this year.

The City watchdog publishes messages found by
investigators, providing a shocking insight into the informal and casual
exchanges between traders and rate submitters. The FSA trawled through emails,
instant messages and phone transcripts to uncover any underhand tactics used by
traders and Barclays staff to influence the rate at which banks lend to each

In one request for a change to the Libor, a trader
said: "Please feel free to say no. Coffees will be coming your way either
way, just to say thank you for your help in the past few weeks." To which
the Barclays submitter responded: "Done, for you big boy."

28 June

The FSA is investigating several other lenders
including HSBC and RBS. Serious Fraud Office investigators are in talks with
the FSA over the scandal, and pressure is mounting on Diamond to stand down.

Diamond writes to the Treasury select committee
saying: "When the trader conduct was first discovered by more senior
management, steps were immediately taken to stop it, and it was reported to the
authorities." No date is given for this but he says the bank "took
steps necessary to strengthen its systems and controls to prevent any
repeat". He adds that because of ongoing civil and criminal investigations
there will be some questions he cannot answer.

29 June

A fresh mis-selling scandal caps a nightmare week
for the banking industry, as the FSA announces it has found "serious
failings" in the sale of complex interest rate hedging products to some
small and medium-sized businesses. It reaches agreement with Barclays, HSBC,
Lloyds and RBS to provide appropriate compensation where mis-selling occurred.

30 June

An urgent independent review into the inter-bank
lending rate is to be set up by the government in the wake of the
interest-rigging scandal. The review will consider the future operation of the
Libor rate and the possibility of introducing criminal sanctions, a Treasury
source says. Diamond is summoned to appear before the Treasury select committee
the following Wednesday.

1 July

Marcus Agius is reported to be on the brink of
stepping down as Barclays chairman. The business secretary, Vince Cable, backs
calls for a criminal investigation into bankers involved in the Libor affair.
Agius announces the following day that he will step down in November.

3 July

Diamond announces he is stepping down with immediate
effect and his right-hand man Jerry del Missier also resigns. In a media
briefing, Barclays says: "Many of the individuals concerned in the trader
conduct, in particular, are in fact no longer with the bank." Details
remain sketchy, with Barclays saying individuals who remain are being
"reviewed to assess their accountability".

4 July

Diamond tells the Treasury select committee he had
no knowledge that anything untoward was happening in October 2008, insisting he
was never made aware of the issues. The American-born banker also denies he is
"personally culpable" for traders' errant dealings.

5 July

It is announced that Tucker, the Bank of England
deputy, will appear before the Treasury select committee the following Monday
to discuss the rate-rigging scandal at Barclays.

6 July

The Serious Fraud Office director, David Green QC,
decides to formally accept the Libor-fixing claims for criminal investigation.

9 July

Tucker tells MPs he denies "absolutely"
any suggestion that he encouraged Barclays to undercall their Libor

10 July

Diamond says in a letter to the select committee's
chairman, Andrew Tyrie, that he is "dismayed" that Tyrie and some of
his fellow committee members suggested he was "less than candid" when
he appeared before them.

9 August

Sir David Walker, the City grandee who oversaw a
review into bank governance for Gordon Brown, is announced as the next chairman
of Barclays. He will join as non-executive director from 1 September before
succeeding Agius as chairman from 1 November.

15 August

Barclays, HSBC and Royal Bank of Scotland are subpoenaed in America over the possible manipulation of an
important global interest rate. The attorneys general of New York and
Connecticut also issue subpoenas to Citigroup, Deutsche Bank, JPMorgan Chase,
and UBS.

Aug 2012 - A joint New
York-Connecticut investigation of Libor send subpoenas to Royal Bank of
Scotland, HSBC Holdings, JPMorgan, Deutsche Bank, Barclays, UBS and Citigroup.
The subpoenas seek communication between executives related to possible
collusion that may have played a role in alleged rate manipulation.

– The BBA
says it will support any recommendation by Martin Wheatley, the FSA's managing
director, for a change of responsibility in setting the rate. The FSA delivers
a 10-point plan to overhaul Libor on September 28, but stops short of scrapping
the benchmark interest rate.

Nov 2012 - Deutsche Bank faces
sceptical German lawmakers who are seeking answers about how banks manipulated
global benchmark interest rates. On the same day, Barclays says it fired five
employees following its investigations into Libor rigging.

– The first
three arrests are made in the scandal
. Former Citigroup and UBS trader,
Thomas Hayes, as well as Terry Farr and Jim Gilmour, employees of inter-dealer
broker RP Martin, are understood to be the men arrested at their homes in
Surrey and Essex.

later Swiss
banking giant UBS agrees to pay £940m
 to regulators in order to
settle charges of manipulating Libor interest rates, fraud and paying bribes to
brokers. The penalty is the second-largest fine paid by a bank and is more than
three times the £290m fine levied on Barclays in June for attempting to rig the
Libor benchmark rate used to price financial contracts around the world.

January 2013

A new
raft of issues come to light, with key heaedlines:

With regard to the issues, the BBA published a report in November 2012, Strengthening LIBOR – proposal to implement
recommendation number 6
of ‘The Wheatley Review
” .

The report clearly shows a 2013 timeline for dealing with the issues raised and solutions offered to the LIBOR markets:

February 2013

Discontinuance of publication of New Zealand Dollar fixings within the LIBOR framework.

March 2013

Discontinuance of publication of Danish Krone and Swedish Krona fixings within the LIBOR framework.

May 2013

Removal of two week, four-, five-, seven-, eight-, nine-, ten- and eleven- month fixings for all currencies within the current LIBOR framework, along with removal of Australian and Canadian dollar fixings. 

This will leave Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP), Swiss Franc (CHF) and US Dollar (USD) currencies within the LIBOR arrangements for overnight/spot-next, 1 Week, 1 Month, 3 Month, 6 Month, 12
Month fixings.

At the end of the LIBOR timeline last week, I mentioned that
the British Bankers’ Association (BBA) has implemented a response to the
Wheatley review which means that several of the currencies covered by LIBOR
will be discontinued.

The Association of Corporate Treasurers (ACT) issued a
to this to enable corporate treasurers to find alternative ways to
deal with the discontinued currencies:  Australian Dollars (AUD), Canadian Dollars
(CAD), Danish Krone (DKK), New Zealand Dollars (NZD) and Swedish Krona (SEK).

Here’s a summary of their advice.

Australian Dollar

The bank bill interest rate is treated as the wholesale interbank
rate within Australia, and is published by the Australian Financial Markets
Association (AFMA).  It is the borrowing
rate among Australia’s top market makers.

The reference rate is typically referred to as the “bank
bill rate” although the actual term is the “bank bill swap interest rate” hence
the abbreviation BBSW.

BBSW rates are made public on a 24 hours delay basis from
AFMA’s website http://www.afma.com.au/data/bbsw.html,
and live rates are available for a paid subscription or on vendor pages such as
Bloomberg and Reuters.

Canadian Dollar

The Canadian Dollar Offered Rate (CDOR) is the recognised
benchmark index for bankers’ acceptances with maturities up to one year.  It is calculated and published daily at 10:15
by Thomson Reuters on the CDOR page of Reuters’ Monitor Service.  CDOR is used as a reference rate in setting
the floating interest rate in commercial agreements and as the settlement price
for a number of derivatives including futures contracts and swaps. It is worth
noting that the sponsor of CDOR, the Investment Industry Regulatory
Organization of Canada (IIROC), is currently performing a review of how the
rate is set.

Danish Krone


The Copenhagen Interbank Offered Rate (CIBOR) is compiled
and published by NASDAQ OMX at approximately 11am daily.  It represents the average interest rate at
which term deposits are offered between prime banks in the Danish wholesale
money market or interbank market.

The Danish Bankers Association has the overall
responsibility for CIBOR publishes rules governing CIBOR rate fixings. These
can be found at (in Danish) http://www.finansraadet.dk/tal–fakta/satser/regler-for-fastlaeggelse-af-cibor.aspx
.  However, following the LIBOR scandal,
the Danish government is passing legislation to move supervision of
rate-setting to the Danish Financial Supervisory Authority http://www.finanstilsynet.dk/en.aspx

New Zealand Dollar

The New Zealand Financial Markets Association (NZFMA) manages,
calculates and distributes New Zealand official market reference rates and
pricing services, including the NZ Bank Bill Reference Rate (BKBM).

NZ BKBMs are downloaded to the NZFMA website at
approximately 4 pm New Zealand Time (NZT) each day, and may be found at http://www.nzfma.org/system/bkbm/default.aspx
Live rates are available on a paid subscription basis. NZFMA Bank Bill
rates are also published and available on Thomson Reuters: page code BKBM and
Bloomberg: page code NZFM1<GO> through the NZdata service.

Swedish Krona

The Stockholm Interbank Offered Rate (STIBOR) is compiled
and published by NASDAQ OMX Stockholm at 11.05am daily.  STIBOR is an arithmetic average of the rates
quoted by five banks on the STIBOR panel. These banks are: Danske bank, Handelsbanken,
Nordea, SEB and Swedbank.  STIBOR is
based on the offered rates that each bank in the panel can offer to the other
banks in the panel for unsecured loans in SEK. If the lowest and/or highest bid
differs with 25 basis points or more from the second lowest and second highest
bid it will be excluded from the calculation. STIBOR is then calculated as an
average of these rates.

The STIBOR rate sponsor is Riksbank. Riksbank performed a
review of STIBOR in November 2012 outlining the need for a number of
reforms.  A copy of the report can be
found at: http://www.riksbank.se/Documents/Rapporter/Riksbanksstudie/2012/rap_riksbanksst

If this is of interest to you, checkout the original ACT
advisory note
, and thanks to Brian Mairs and  John Grout for pointing out the BBA and ACT responses.



About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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