The Libor Scandal: RBS facing fine of £390m

The Royal Bank of Scotland has been in the spotlight this month, after a fine was issued for the bank’s role in the Libor rate-fixing scandal.

The London inter-bank lending rate, or Libor, is one of the most important interest rates in the world of finance. It dictates the average rate at which London-based banks lend money to each other. It supports financial contracts and loans of up to trillions of pounds.

In 2005, it was banking giant Barclays that came under fire after evidence was uncovered that proved the bank had attempted to manipulate the Libor dollar rates, following requests to do so from other banks.

Representatives and employees of the large banks talked over the phone and on instant messaging programs, nudging each other in an often jocular fashion to change the lending rates accordingly.

Following the recession in 2007 and the liquidation of Northern Rock, Barclays further manipulated Libor to make it look as though the bank’s credit quality was in a much better state than it was.

The Royal Bank of Scotland (or RBS), while not to the same level as Barclays, continued to manipulate their Libor. In 2011, four employees were sacked for their roles in the scandal.

According to the BBC, RBS has been fined a total of £390 million for its Libor-fixing activities.

It is expected that the fines will not be recovered from tax payer’s money, despite the fact that RBS is 81% owned by the tax payer. The £300 million now owed to US authorities thanks to the fine will be recovered from previous bankers’ bonuses and their future bonuses.

RBS has admitted that its own internal investigations led to 21 employees receiving disciplinary action or facing firing.

Thanks to the agreement of RBS to settle at an early point in the investigation into the Libor rate fixing, the bank was granted a 30% discount on part of the total fine.

A spokesman from spread betting and Forex trading experts City Index said of the scandal: “The Libor scandal has been a hindrance on the sector and RBS especially considering how long the firm has been in negotiations with regulators over a fine settlement.

“The fact that they have now reached an agreement is a double positive for shareholders in that it draws a line under the situation and the fact that the fine is less than expected.”

The RBS fine follows a huge government bailout in 2008, when RBS was on the very verge of collapse.