Barclays Scandal: Libor Essays

Words: 2292
Pages: 10

From Amanda Chua, Financial Manager
To Sir David Walker, Chairman of Barclays Plc.
Date 24th February 2013
Subject Implication of The Recent Libor-Fixing Scandal for Barclays Bank

1. Executive Summary * The London Interbank Offered Rate (Libor) is the average interest rate charged to banks for lending funds in the interbank market (Investopedia n.d.). * The UK Treasury reported that Libor is responsible for an estimated $300 trillion worth of financial transaction (BBC 2012). * Barclays’ traders submitted inappropriate rates upon derivative traders request (FSA 2012). * Barclays’ submitted inappropriate rates to prevent negative media attention (FSA 2012). * Barclays was fined £290 million for Libor scandal
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Moreover, investment firms and municipal government who fell victim to the Libor scandal due to the buying of bonds or signing of contracts demanded reimbursement from Barclays and will inevitably elicit legal actions (Bloomberg News 2012).

5. Role of Financial Management
Profit maximization is the goal of financial management (Hillier et al, 2011) indicating that its objective is gaining greatest profits by using all possible resources irrespective of the consequences or underlying risk (O’Farrell n.d.). This is seen as Barclays’ traders tried to maximize profits for their own benefit as well as their stakeholders.
Shortcomings of Profit Maximization
During the financial crisis, banks were financially unstable, they refused to borrow one another funds because of the low confidence they had for one another, seen through the Libor ratings that were previously submitted before the Libor rigging scandal. Barclays chose to conceal its proper Libor rates that would have indicated its troubled state to the public. This was second by the fact that a firm who pursues the goal of profit maximization will inevitably exploit its workers and consumers, which exemplify an unethical way of carrying out a business resulting from its corrupted practices (MBA Knowledge Base n.d.). In Barclays’ case, this was shown by its objective to save the bank’s reputation by finding means to profit maximize to avoid possible