Tags: EU | Bank | Regulation | Libor

EU Prepares Tougher Bank Regulation in Response to Libor Scandal

Tuesday, 03 July 2012 02:14 PM

Banks in the European Union may face a fresh wave of regulation as lawmakers respond to the Libor scandal that led to the resignation of the three most senior managers at Barclays Plc.

Michel Barnier, the 27-nation EU’s financial services chief, said today that he would examine whether the manipulation of the London interbank offered rate had exposed “gaps” in the bloc’s laws. At the same time, legislators in the European Parliament are seeking to bolster plans unveiled last year to toughen sanctions against market abuse.

The resignations at Barclays came after the bank was fined a record 290 million pounds ($455 million) by regulators in the U.S. and U.K. for attempting to rig Libor. The bank admitted that it submitted false Libor information to benefit derivatives trades and bolster its own positions.

Robert Diamond stepped down today as chief executive officer of Britain’s second-biggest bank and Jerry Del Missier quit as chief operating officer, London-based Barclays said in a statement. Chairman Marcus Agius, 65, will quit once he has found a replacement for Diamond, who has worked at the bank for the past 16 years and oversaw its investment banking expansion.

“The lesson which we draw from this case is that it reinforces the need for ensuring the highest standards of conduct in the regulation of financial services,” Stefaan De Rynck, a spokesman for Barnier, said in an e-mail. The revelations show the need to reinforce penalties, including criminal sanctions, he said.

Tougher Oversight

The Barclays fine provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda. De Rynck said Barnier is “following developments” with the commission’s antitrust department, which has a related probe into Libor and Euribor rates.

Arlene McCarthy, the lawmaker leading work in the EU parliament on the draft law on market abuse, said she and Barnier discussed how the bloc’s rules should be extended to ensure that manipulation of interbank lending rates is treated as a criminal offense.

The scandal has “made people more determined that this has to be a strong set of rules, and we need the member states to back that,” McCarthy said in a telephone interview from Strasbourg, France.

The EU needs to “give regulators the tools they were asking for to be tougher” on market abuse, she said.

International Investigations

The U.K. Financial Services Authority’s probe is part of a coordinated set of international investigations into allegations that interbank rates were rigged during the financial turmoil of 2008.

The probes, which have lasted two years, involve regulators on three continents, including Joaquin Almunia, the EU’s antitrust chief. Almunia said last week that the Libor and Euribor probes were a “top priority.”

“For me it’s classic market manipulation,” McCarthy said. By pushing up other interest rates, manipulation of Libor may have had a “massive impact” on loans to small businesses, and aggravated the credit crunch, she said.

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Tuesday, 03 July 2012 02:14 PM
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