Case | HBS Case Collection | January 2013 (Revised October 2014)

Barclays and the LIBOR Scandal

by Clayton S. Rose and Aldo Sesia

Abstract

In June of 2012, Barclays plc admitted that it had manipulated LIBOR—a benchmark interest rate that was fundamental to the operation of international financial markets and that was the basis for trillions of dollars of financial transactions. Between 2005 and 2009 Barclays, one of the world's largest and most important banks, manipulated LIBOR to gain profits and/or limit losses from derivative trades. In addition, between 2007 and 2009 the firm had made dishonestly low LIBOR submission rates to dampen market speculation and negative media comments about the firm's viability during the financial crisis. In settling with U.K. and U.S. regulators the firm agreed to pay $450 million in fines. Within a few days of the settlement, Barclays' CEO, Robert Diamond, had resigned under pressure from British regulators. Diamond blamed a small number of employees for the derivative trading related LIBOR rate violations and termed their actions as "reprehensible." As for rigging LIBOR rates to limit market and media speculation of Barclays' financial viability, Diamond denied any personal wrongdoing, and argued, that if anything, Barclays was more honest in its LIBOR submissions than other banks—questioning how banks that were so troubled as to later be partly nationalized could appear to borrow at a lower rate than Barclays. This case explains why LIBOR was an essential part of the global financial market, the mechanism used to establish the rate, and what Barclays did wrong. The case allows for an examination of: i) the consequences of violating the trust of market participants, ii) cultural and leadership flaws at Barclays; iii) the challenge of effectively competing in a market where systemic, and widely understood, corruption is taking place, iv) the complicity of regulators in perpetuating a corrupt system; v) what might, or might not, be effective remedies for the systemic flaws in LIBOR.

Keywords: financial systems; financial services; ethics; corruption; regulation; culture; leadership; general management; Management; Leadership; Economic Systems; Crime and Corruption; Ethics; Culture; Banking Industry; Financial Services Industry; United Kingdom;

Language: English Format: Print 22 pages EducatorsPurchase

Citation:

Rose, Clayton S., and Aldo Sesia. "Barclays and the LIBOR Scandal." Harvard Business School Case 313-075, January 2013. (Revised October 2014.)

Related Work

  1. Teaching Plan | HBS Case Collection | April 2013

    Barclays and the LIBOR Scandal

    Clayton S. Rose and Aldo Sesia

    In the summer of 2012, Barclays plc, one of the largest banks in the world, agreed to settle with authorities and acknowledged that the firm had manipulated LIBOR (London Inter-Bank Offered Rate)—a benchmark reference rate that was fundamental to the operation of international financial markets and was the basis for trillions of dollars of financial transactions. The scandal brought into question the credibility of LIBOR and raised the issue of who was responsible for the manipulation that had occurred at Barclays. The scandal cost Barclays' chairman and its controversial CEO Robert Diamond their positions and called into question the actions of the Bank of England, U.K.'s central bank. The case provides students with an opportunity to understand the details behind the scandal and the roles of multiple parties. It allows students to explore the challenges faced by leaders operating in a corrupt system, and to understand the responsibilities that financial institutions and their leaders/managers have to the financial and economic systems in which they operate. Because LIBOR is so widely used as a benchmark reference, the case study and analysis have global implications.

    Keywords: financial systems; financial services; ethics; corruption; regulation; culture; leadership; general management; Management; Leadership; Economic Systems; Crime and Corruption; Ethics; Culture; Banking Industry; Financial Services Industry; United Kingdom;

    Citation:

    Rose, Clayton S., and Aldo Sesia. "Barclays and the LIBOR Scandal ." Harvard Business School Teaching Plan 313-108, April 2013.  View Details
    CiteView DetailsPurchase Related

  2. Case | HBS Case Collection | January 2013 (Revised October 2014)

    Barclays and the LIBOR Scandal

    Clayton S. Rose and Aldo Sesia

    In June of 2012, Barclays plc admitted that it had manipulated LIBOR—a benchmark interest rate that was fundamental to the operation of international financial markets and that was the basis for trillions of dollars of financial transactions. Between 2005 and 2009 Barclays, one of the world's largest and most important banks, manipulated LIBOR to gain profits and/or limit losses from derivative trades. In addition, between 2007 and 2009 the firm had made dishonestly low LIBOR submission rates to dampen market speculation and negative media comments about the firm's viability during the financial crisis. In settling with U.K. and U.S. regulators the firm agreed to pay $450 million in fines. Within a few days of the settlement, Barclays' CEO, Robert Diamond, had resigned under pressure from British regulators. Diamond blamed a small number of employees for the derivative trading related LIBOR rate violations and termed their actions as "reprehensible." As for rigging LIBOR rates to limit market and media speculation of Barclays' financial viability, Diamond denied any personal wrongdoing, and argued, that if anything, Barclays was more honest in its LIBOR submissions than other banks—questioning how banks that were so troubled as to later be partly nationalized could appear to borrow at a lower rate than Barclays. This case explains why LIBOR was an essential part of the global financial market, the mechanism used to establish the rate, and what Barclays did wrong. The case allows for an examination of: i) the consequences of violating the trust of market participants, ii) cultural and leadership flaws at Barclays; iii) the challenge of effectively competing in a market where systemic, and widely understood, corruption is taking place, iv) the complicity of regulators in perpetuating a corrupt system; v) what might, or might not, be effective remedies for the systemic flaws in LIBOR.

    Keywords: financial systems; financial services; ethics; corruption; regulation; culture; leadership; general management; Management; Leadership; Economic Systems; Crime and Corruption; Ethics; Culture; Banking Industry; Financial Services Industry; United Kingdom;

    Citation:

    Rose, Clayton S., and Aldo Sesia. "Barclays and the LIBOR Scandal." Harvard Business School Case 313-075, January 2013. (Revised October 2014.)  View Details
    CiteView DetailsEducatorsPurchase Related
Campus Map
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→ Map & Directions
Copyright © President & Fellows of Harvard College