Barclays PLC agreed to pay $453 million in fines to U.S. and U.K. regulators this week as part of an ongoing probe of interest rate manipulation after admitting that traders and executives there tried to manipulate interest rates tied to loans and financial contracts around the world. Other banks that have disclosed that they are under investigation in this matter include Citigroup, HSBC Holdings, J.P. Morgan Chase, Lloyds Banking Group and Royal Bank of Scotland Group. UBS has reached immunity deals with a variety of regulators. The wrongful conduct at Barclays lasted at least four years and at times occurred on an almost daily basis.
I can’t say that I am surprised that traders would try to manipulate rates in order to benefit their positions and to make the bank appear stronger than it was or even that higher-ups would lie to try to cover for them. But I was struck by the sort-of defense offered by Barclays. Apparently a senior manager at Barclays warned the bankers’ association (responsible for the setting the rates being manipulated) in a telephone call in 2008 that the bank hadn’t been submitting accurate Libor rates while claiming it was not the worst offender on the panel.
Note this fascinating turn of the phrase: “We’re clean, but we’re dirty-clean, rather than clean-clean,” a Barclays employee stated. Perhaps even more damning, a bankers’ association representative responded: “No one’s clean-clean.”
As an industry, we’re far too willing to settle for “dirty-clean” – the idea that we’re not all that bad or aren’t as bad as someone else. It is reflected in the actions of investment banks and advisors claiming to act in the best interests of clients while rejecting anything like a fiduciary standard. It is reflected in fiduciaries acknowledging the business and other pressures to do what’s good enough instead of what’s truly best for clients. It is reflected in those in a position to do so gouging their customers simply because they can and because the rules may allow it.
Clients are cynical about us. They have every right to be cynical. We have earned it. If we are going to improve our image – and more importantly do what’s right and best for our clients – we’re going to have to do much better. We need to be clean-clean.