‘Epitaph to age of irresponsibility’

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Chancellor George Osborne yesterday branded the latest scandal to hit the banking sector “a shocking indictment” of their culture in the run-up to the crisis which led to the credit crunch.

He told MPs he would look at strengthening the criminal sanctions available to the Financial Services Authority (FSA) in response to the scandal.

Barclays has been fined £290m by regulators for manipulating the Libor rate at which banks lend to each other in deals which affected millions of homeowners and businesses.

A trail of emails, messages and phone transcripts disclosed by the FSA showed how traders requested Barclays make changes to the Libor rate to boost their profits.

The scandal has put mounting pressure on Barclays chief executive Bob Diamond to stand down.

In a statement, Mr Osborne said: “The email exchanges between derivative traders and Libor submitters read like an epitaph to an age of irresponsibility.

“Through 2005, 2006 and early 2007, we see evidence of systematic greed at the expense of financial integrity and stability.

“And they knew what they were doing. ‘Keep it a secret,’ one trader tells another in 2007. ‘If you breathe a word of this, I’m not telling you anything else.’ Yet no one at Barclays prevents them and no one in the tripartite regulatory system knows anything about it and the Government of the day is literally clueless about what is going on.”

Turning to Mr Diamond, who waived his bonus for 2012 in light of the scandal, the Chancellor said: “As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today.

“What did he know and when did he know it? Who in the Barclays’ management was involved and who, therefore, should pay the price?”

The controversy, which covers a period between 2005 and 2009, could spread to other lenders, as RBS, HSBC, UBS and Citigroup are also being investigated.

The rates manipulated are set on wholesale money markets – where banks lend to each other – which in turn affects rates they pass on to customers through credit cards, loans and mortgages.

The British Bankers’ Association launched a review into Libor and how it was set in March. In a statement, it said: “As part of this review we will now be asking the authorities to consider in what manner the Libor-setting mechanism should be regulated in the future.”

The Chancellor confirmed the Government was already looking at Libor regulation in the context of wider financial services reforms and would consider changing the law so that bank fines go back to the taxpayer.

In the depths of the financial crisis, Barclays gave false information about the interest rates it had to pay to borrow money to paint a false picture of its health to markets.

Mr Diamond, who was in charge of Barclays Capital at the time the breaches occurred, apologised and said nothing was more important to him than “having a strong culture at Barclays”. Senior executives Jerry del Missier, Rich Ricci and chief financial officer Chris Lucas will also waive their 2012 bonuses.

The scandal is another blow to the banking sector as it battles to restore its tarnished image in the wake of the financial crisis and the scandal of mis-sold payment protection insurance.

Sandy Chen, banking analyst at Cenkos Securities, said he was braced for billions of pounds in fines and damages across the banking sector.

He said: “We are pencilling in multi-year provisions that could run into the billions.”