ICT Views

Barclays: rating the interest (a little white Libor?)

by: (Associate Director, Research and Development) on

OK, first things first.

This is purely a ‘devil’s advocate’ piece. I must be clear from the outset that I am certainly not endorsing, condoning or in any way promoting the behaviour which I am about to blog about. But I do find the concepts involved interesting.

Indeed, Corporate Governance, Ethics and Social Responsibility are key components of ICT training. Perhaps this is something we should be shouting about a bit louder?

The mention of these issues probably give a big clue to the blog topic (oh yeah, as well as the giveaway in the title!).

There has been a lot happening with Barclays in the last few weeks.

Shortly after an agreement was reached with the FSA concerning Barclay’s role in (mis)selling complicated interest rate hedging investment vehicles (‘swaps’) to small businesses (mentioned in my March blog), all this Libor stuff hit.

It’s all out there for you to see. To summarise in one breath:

Barclays, it seems, were caught attempting to manipulate a particularly important central interest rate (essentially, the one used for institutions to lend to each other). As a consequence, the Chief Executive has stepped down, the Chairman has resigned, the Serious Fraud Office are considering their options, the FSA have said they couldn’t really do much else other than fine Barclays, and the political parties are arguing whether acts like this are (or should be) criminal.

And breathe out. Phew.

Chuck in the international aspect (the US element of the $160m fine by the Dept. of Justice), stir in some incalculable reputational damage, and a fall in share price, and all in all it’s been a pretty dour period for Barclays.

But it seems they are not on their own. Recent reports have suggested that similar investigations are afoot at HSBC, Citigroup, RBS and UBS. To further muddy the waters, it has also been reported that the UK Treasury may have known about, or (gasp) tacitly suggested this course of action.

So here’s the thing.

Is it really that bad? (another gasp)

The blog I wanted to write was about exactly that. But the good old BBC beat me to it. Darn their international-scale resources and professional journalists.

Nonetheless, the fact remains. What if, by manipulating this rate in this particularly difficult economic period, Joe Public had actually benefited? Would ‘we’ (I count myself as part of Joe Public) still be complaining? It’s an interesting one, isn’t it?

On the one hand Barclays have once again lived up to the current media hype and portrayal of unscrupulous, faceless and morally bankrupt fat cats who don’t care about anything or anyone but themselves. That’s what the letters to BBC’s ‘Points of View’ will say. 

On the other hand, (devil’s advocate, remember), what if the manipulation actually in some more subtle ways had a positive effect? What if it kept the corporate lending wheel turning, buoyed up stock markets, retained people’s jobs and passed on benefits to the wider economy?

Honestly, I don’t know enough about it all to possibly claim this has been the case - it is the IDEA that interests me.

Which option would be morally or socially ‘better’? (to deliberately use a word with a broad meaning). Perception, particularly when reflected through the popular media, can have a massive impact on what ‘we’ think about situations.

Just to illustrate this point - and yes, I do tend to bang on about this – I’ll mention the Low Cost Endowment (LCE) mis-selling scandal of recent years.

If all the LCE policies had exceeded their target amounts and paid out returns in excess of the highest illustration figures, would anyone have complained they had been mis-sold? Or would everyone have rubbed their hands and said ‘thanks very much’, happy in their ignorance of the suitability at the point of sale, as the profitable end justified the means?

Is that not a similar thing?

I’m just saying, that’s all.

Devil’s advocate. That’s my get out. Let’s see how this all ends up.

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