Nobody ever thought Barclays was the only bank fixing Libor

Those in charge always knew that other banks were involved. So why have they got away so far?

Over the weekend, it became clearer than ever that Barclays were not the only bank involved in Libor rate-fixing, a fact which will have ramifications for the future of Paul Tucker, the Bank of England official tied up in the scandal, but also raises further questions about the proporitionality of the response, both official and popular.

A bumper report from the Sunday Telegraph's Philip Aldrick details the smoking gun:

The 2011 report by the Financial Services Authority into the collapse of Royal Bank of Scotland in early October 2008, three weeks before Tucker’s call with Diamond, makes clear the lender had lost its access to the money markets, noting that the “liquidity run reached extreme proportions”.

"On 7 October, 2008, RBS’s wholesale counterparties, as well as, to a lesser extent, retail depositors, were simply not prepared to meet its funding needs and RBS was left reliant on ELA from the Bank of England," wrote the FSA.

The reference to ELA, or Emergency Liquidity Assistance, is important as Tucker, unlike the rest of the market at that stage, would have known that the Bank of England had begun providing secret loans, first to crisis-ridden HBOS and then to RBS, that totalled nearly £62bn.

Speaking to the Treasury Select Committee in November 2009, Tucker told the MPs that without the emergency loans it “would have been a lot worse than it would have been” otherwise. “This was a classic lender of last resort operation,” he said.

Records of historic Libor submissions available on Bloomberg show that despite HBOS and RBS being on emergency life support they were both submitting Libor figures that appeared to show they could borrow at cheaper rates in dollars and sterling than Barclays throughout the months leading up to the collapse of Lehman Brothers in September 2008, and in the period afterwards.

The normal way that Libor - and, indeed, lending in general - works is that the weaker a bank is, the more it has to pay to borrow. In the autumn of 2008, that all fell apart: banks which were too weak could offer high rates to borrow at, but those high rates were themselves taken as a sign that the banks were on the brink of collapse.

The result of this is that there was basically no level at which HBOS and RBS could borrow all the money they needed (the technical parlance is that there was no level which "cleared" the market). It would have been impossible for them to submit true estimates of how much they'd have to pay to borrow large sums, because they simply could not borrow that much. To be accurate, Libor would have had to hit infinity per cent.

The Bank of England, and Paul Tucker particularly, must have known this, because even after RBS and Lloyds Banking Group had taken secret funding from the Bank (£60bn of loans to make up for their inability to get money through conventional routes) they continued posting Libor rates lower than Barclays.

This isn't to say that the other banks are necessarily as guilty as Barclays. While we know it is unlikely to be the only bank posting artificially low rates to look safe during the crisis, there is no indication as yet that any other banks were partaking in the far more dubious manipulation, aimed at simple profits, that occurred in the run-up to 2008.

Still, there must be someone at Barclays kicking themselves over the fact that they co-operated with the authorities. The intention was clearly to gain some credit, and possibly lax treatment, for pleading guilty and co-operating from the start. Instead, the bank has become the scapegoat for the crimes of an industry. As Felix Salmon writes:

In any case, when the other shoe drops, the headlines are going to be smaller: this kind of activity is never as shocking the second time around. Look at what happened to Citigroup, which was actually more evil than Goldman when it put together the Class V Funding III CDO. (The profits from Goldman’s Abacus deal went mostly to John Paulson; the profits from the Citi deal went straight to Citi.) Citi settled the case for $285 million — less than Goldman paid — and suffered almost none of the PR backlash that was inflicted on Goldman.

Stephen Hester must be feeling pretty lucky right now. Who wants to bet his name will come up as much as Bob Diamond's?

Stephen Hester, chief executive of RBS, which has been accused of manipulating Libor. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

European People's Party via Creative Commons
Show Hide image

Ansbach puts Europe's bravest politician under pressure

Angela Merkel must respond to a series of tragedies and criticisms of her refugee policy. 

Angela Merkel, the Chancellor of Germany, is supposed to be on holiday. Two separate attacks have put an end to that. The first, a mass shooting in Munich, was at first widely believed to be a terrorist attack, but later turned out to be the actions of a loner obsessed with US high school shootings. The second, where a man blew himself up in the town of Ansbach, caused less physical damage - three were seriously injured, but none killed. Nevertheless, this event may prove to affect even more people's lives. Because that man had come to Germany claiming to be a Syrian refugee. 

The attack came hours after a Syrian refugee murdered a pregnant Polish woman, a co-woker in a snack bar, in Reutlingen. All eyes will now be on Merkel who, more than any other European politician, is held responsible for Syrian refugees in Europe.

In 2015, when other European states were erecting barriers to keep out the million migrants and refugees marching north, Merkel kept Germany's borders open. The country has resettled 41,899 Syrians since 2013, according to the UNHCR, of which 20,067 came on humanitarian grounds and 21,832 through private sponsorship. That is twice as much as the UK has pledged to resettle by 2020. The actual number of Syrians in Germany is far higher - 90 per cent of the 102,400 Syrians applying for EU asylum in the first quarter of 2016 were registered there. 

Merkel is the bravest of Europe's politicians. Contrary to some assertions on the right, she did not invent the refugee crisis. Five years of brutal war in Syria did that. Merkel was simply the first of the continent's most prominent leaders to stop ignoring it. If Germany had not absorbed so many refugees, they would still be in central Europe and the Balkans, and we would be seeing even more pictures of starved children in informal camps than we do today. 

Equally, the problems facing Merkel now are not hers alone. These are the problems facing all of Europe's major states, whether or not they recognise them. 

Take the failed Syrian asylum seeker of Ansbach (his application was rejected but he could not be deported back to a warzone). In Germany, his application could at least be considered, and rejected. Europe as a whole has not invested in the processing centres required to determine who is a Syrian civilian, who might be a Syrian combatant and who is simply taking advantage of the black market in Syrian passports to masquerade as a refugee. 

Secondly, there is the subject of trauma. The Munich shooter appears to have had no links to Islamic State or Syria, but his act underlines the fact you do not need a grand political narrative to inflict hurt on others. Syrians who have experienced unspeakable violence either in their homeland or en route to Europe are left psychologically damaged. That is not to suggest they will turn to violence. But it is still safer to offer such people therapy than leave them to drift around Europe, unmonitored and unsupported, as other countries seem willing to do. 

Third, there is the question of lawlessness. Syrians have been blamed for everything from the Cologne attacks in January to creeping Islamist radicalisation. But apart from the fact that these reports can turn out to be overblown (two of the 58 men arrested over Cologne were Syrians), it is unclear what the alternative would be. Policies that force Syrians underground have already greatly empowered Europe's network of human traffickers and thugs.

So far, Merkel seems to be standing her ground. Her home affairs spokesman, Stephan Mayer, told the BBC that Germany had room to improve on its asylum policy, but stressed each attack was different. 

He said: "Horrible things take place in Syria. And it is the biggest humanitarian catastrophe, so it is completely wrong to blame Angela Merkel, or her refugee policies, for these incidents." Many will do, all the same.