Barclays Cheated to Influence Interest Rates

By Kenneth Long on June 28, 2012

Barclays is having to shell out the equivalent of $453 million to settle charges that it illegally manipulated interest rates. The penalties are for actions that occurred between 2005 and 2009.

The actions included providing false reports about its own interbank borrowing costs. Additionally, the bank is charged with colluding with other banks so as to influence their reports.

The primary measure of interest rates is LIBOR, which measures how much banks charge each other for overnight loans. Most interest rates charged to US consumers are pegged to Prime Rate. Your credit card terms may specify that your interest rate would be Prime Rate plus a certain percentage. One credit card issued by Barclays specifies an interest rate of at least 13.74 plus Prime Rate.

The result of this manipulation is that you may have unwittingly paid just a little bit more in interest on any number of credit balances that you maintained either on credit cards or on installment loan purchases. For this extra cost, you will receive nothing from the settlement.

Recent lawsuits by big victims are seeking to collect on claims of major losses. The city of Baltimore for example is pursuing unspecified damages against Barclays and several other major banks accused of colluding with the banking giant.

Some estimates put the illegal profits at up to $1 billion that the bank may have gained from the scheme. Still, a penalty of this magnitude will easily affect earnings during the current period. To compensate, the bank's 4 top executives intend to forego their bonuses this year. It makes you wonder how much those bonuses were expected to be if it is to somewhat offset the $453 million in penalties that will be incurred by the bank.