Barclays will pay $500 million in fines to U.K. and U.S. regulators to settle its role in fixing base index rates. Barclays was found to have falsified and manipulated its reports to the Libor and Euribor base rates in order to profit on its short-term derivatives trades, and also to bolster its public image. The bank was also found to have lacked the necessary accounting controls to prevent mid-level managers from manipulating its reports to the base rates. Internal email messages showed that base rate manipulation was an everyday practice at the bank for a period of years, and the distortions went so far that the bank’s reports at times lost all connection to reality. In connection with the fines, Barclays’ CEO and three other executives been stripped of their bonuses for this year. Regulators say a dozen other banks may be equally culpable in the base rate scandal.
Discussions about winding down the least solvent giant banks picked up this week, with calls for perhaps 20 of Europe’s largest banks to be liquidated as part of one plan being floated to save the euro zone from collapse. Meanwhile in the United States, the five largest banks were putting the finishing touches on their self-liquidating plans, which are meant to serve as a guide for the FDIC and other regulators the next time those banks get into a financial squeeze.
Last night in Europe there were discussions about creating a new euro zone bank bailout authority. It could be operating by July 9, politicians said. The news lifted stock markets worldwide today. The new international source of bank bailout/takeover funds could ease the fiscal pressure on countries like Ireland and Spain, which are currently unable to borrow money internationally because of the high cost of previous banking-system actions.
Four large U.K. banks have agreed to a deal to remedy improper marketing and other failings in selling interest rate derivatives to small business. Under the vaguely worded terms of the deal, the banks will look through their books and issue refunds where they are warranted.
New estimates of the results of JPMorgan’s high-risk derivatives bets say the ultimate losses will be between $6 billion and $9 billion. These latest estimates are based on accounting studies and are much higher than the initial estimate of $2 billion. The bank is unwinding its most volatile positions faster than initially planned because of the risk that market losses could expand as time goes on. However, some of the bank’s positions are so large compared to the size of the total market that they cannot be liquidated in just a few months.
There will be relatively few bank failures in the United States for the next seven months as we enter the political season. Regulators will postpone actions of all kinds as they seek to keep the technical details of banking regulation out of the political spotlight.