New Libor disclosures in court

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The Bank of England attended a meeting in which senior executives of major banks discussed inaccurate Libor rates, at the start of the credit crunch, according to an email cited in court.

The BoE warned the bankers not to discuss the meeting in public, according to the email. The email suggests the executives acknowledged Libor was inaccurately low and discussed raising it. Banks have been fined billions of pounds for manipulating Libor. The London Inter Bank Offered Rate – or Libor – is supposed to track the interest rates banks expect to pay to borrow funds from each other. Until recently, 16 banks publicly stated every day what interest rate they thought they could borrow at – and an average was taken – which in turn determined the cost of millions of mortgages and commercial loans. But it could be manipulated. Traders who had bet large sums on which way Libor would go could ask a favour of the staff stating each bank’s rates, tweaking the average up or down by a few hundredths of 1%. And during the credit crunch another, more serious form of manipulation took place, called “low-balling” – where banks under-stated by much larger sums what they were really paying to borrow money – to avoid looking like they were in trouble. The main banks say that senior executives were unaware of any Libor manipulation. In 2012 the Bank of England told MPs it did not know about allegations of low-balling until that year.

Internal email

At a preliminary hearing in litigation against Lloyds, lawyers for the claimant, Wingate Associates, a customer of the bank, referred to an internal Lloyds email which may shed new light on the nature of the discussions between the Bank of England and commercial banks. In the email, dated 15 August 2007, a Lloyds executive tells a senior colleague about a meeting he attended the previous day with the Bank of England’s Paul Tucker and senior bank executives from Barclays, RBS, HSBC and HBOS. At the meeting, the email says, bank executives agreed the Libor rates being submitted “do not reflect where we can borrow in decent size”. It adds that they agreed “there was a case for us fixing Libor considerably higher.” Lawyers for Wingate said it was their case that the day following, Libor went up to 6.75%, precisely as indicated would be a good idea in the report on that meeting. The proceedings continue.

By Andy Verity BBC economics correspondent


RBS Launches a New Complaints Process and Refund of Complex Fees

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RBS is today announcing, with the agreement of the FCA, a new complaints process, overseen by an Independent Third Party – Sir William Blackburne, a retired High Court Judge – and an automatic refund of complex fees paid by SME customers in GRG during the relevant period.

RBS is also responding to the FCA’s update on its review into the treatment of SME customers in the bank’s former , (GRG) between 2008 – 2013 and its summary of the Promontory Financial Group report. As the bank has acknowledged, in some areas, it could have done better for SME customers in GRG. Specifically, the bank could have managed the transition to GRG better and should have better explained to customers any changes to the prices or complex fees it was charging. The bank accepts that it did not always communicate as well or as clearly as it should have done. The bank also did not always handle customer complaints well. RBS notes that the FCA’s update confirms that no evidence was found that the bank artificially engineered a position to cause or facilitate the transfer of a customer to GRG or identified customers for transfer for inappropriate reasons and that all SME customers transferred to GRG were exhibiting clear signs of financial difficulty. The update makes clear that there were no cases where the purchase of a property by West Register alone gave rise to a financial loss to the customer and that there was no evidence of intent for West Register to purchase assets being formed prior to the transfer to GRG. It also states that, in a significant majority of cases, it was likely that RBS’s actions did not result in material financial distress to these customers.

As a result of the historical issues identified, RBS is taking two important steps for those SMEs in the UK and ROI that were customers in GRG during the period between 2008 – 2013. This activity is designed to address the bank’s failings. These proposals have been developed with the involvement of the FCA which agrees that these are appropriate steps for the bank to take. RBS will provide further details of the new complaints process on its website. The bank estimates the costs associated with the new complaints review process and the automatic refund of complex fees to be approximately £400m, to be provided in Q4 2016. This includes the operational costs of both the fee refund and the new complaints process, together with the refund of complex fees and additional estimated redress costs arising from the new complaints process.

It is important to remember that the period in question, between 2008 – 2013, was a very challenging time for the bank and its customers. In 2008, there was an unprecedented increase in SMEs falling into financial distress and the number moving into GRG increased by around 400%. RBS lost more than £2bn from lending to SME customers.  RBS continues to cooperate fully with the FCA and remains keen to understand, and learn lessons from, any conclusions that the FCA draws in its review.  It would not be appropriate to comment further on that review until those conclusions have been published. Ross McEwan, CEO of RBS said: “We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. I am very sorry that we did not provide the level of service and understanding we should have done. “Although the FCA review into the historical operation of GRG continues, we believe that now is the right time to deal with the areas where we accept some customers were let down in the past.  I am pleased that with the agreement of the FCA, we are able to announce a new complaints process overseen by Sir William Blackburne, alongside an automatic refund of complex fees paid by SME customers who were in GRG between 2008 – 2013. “The culture, structure and way RBS operates today is fundamentally different from the period under review. We have made significant changes to deal with the issues of the past, so that the bank can better support SME customers in financial difficulty whilst also protecting the bank’s capital.”




Spy agency GCHQ investigates Tesco Bank cyber theft amid fears it was ‘state sponsored’

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Tesco has enlisted the help of spy agency GCHQ to assist its investigation of what is the most serious cyber attack ever launched against a British bank. The supermarket giant contacted the National Cyber Security Centre (NCSC), a new part of GCHQ that tackles crime online and opened last month, after it learned of the theft at Tesco Bank at the weekend. The NCSC reports into GCHQ, the UK’s digital espionage agency, and has been providing “on-site assistance” to Tesco. It is working alongside the National Crime Agency to investigate the attack. Tesco Bank initially said on Monday that it had detected “online criminal activity” in 40,000 current accounts and that money was taken from half of them. Late on Tuesday, it clarified that 9,000 accounts had hit by “fraudulent transactions” and that it had reimbursed an estimated £2.5m to affected customers as a result.

The lender had been forced to suspend online transactions as it investigated the attack, which involved sums running into thousands of pounds being stolen from customers, but said last night that that normal service had now been resumed. Chris Philp, an MP on the Commons Treasury Select Committee (TSC), has suggested the theft could have been “state-sponsored”. The NCSC said it was “unaware of any wider threat to the UK banking sector connected with this incident”.

Andrew Bailey, the chief executive of City watchdog the Financial Conduct Authority, told the TSC today that the attack against the lender “looks unprecedented in the UK”. He said that “it’s too early to give you a comprehensive account of what the root causes are” but added that the hack “clearly appears to be in the debit card side of online banking as far as I can tell”.

The bank has a total of 136,000 current accounts and offers services, including insurance and mortgages, to almost eight million customers.


RBS to compensate squeezed firms

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Royal Bank of Scotland is to compensate up to 12,000 small business customers that it allegedly mistreated in the wake of the financial crisis.

The bank has announced a fund of £400m for affected firms. Its Global Restructuring Group (GRG) had been accused of buying assets cheaply from failing firms it claimed to be helping. However, regulators found RBS did not “artificially engineer” the transfer of customers to GRG. Last month, RBS said it had let some small business customers down in the past but denied it had deliberately caused them to fail.

‘Very sorry’

On Tuesday, RBS chief executive Ross McEwan said: “We have acknowledged for some time that mistakes were made. Some of our customers went through what was a traumatic and painful experience as a result of the crisis. “I am very sorry that we did not provide the level of service and understanding we should have done.” The bank will automatically refund complex fees paid by about 4,000 small business GRG customers between 2008 and 2013, and will set up a new complaints process. The process will be overseen by retired High Court judge Sir William Blackburne. Complaints will initially be dealt with by the bank, and any that are not resolved will then be considered by the third party. Customers who feel they have lost out may have to fight for redress through the courts.Mr McEwan told the BBC: “It would be fair to say that consequential loss needs to go to the court at the end of the day, because it will be up to a court process in most of these situations for them to determine whether… those businesses were going to be viable, and be a very successful business going forward.” In the case of businesses that have gone bust but are due compensation, it will be up to administrators to decide whether to reconstitute the firm, said RBS regulatory affairs officer, Jon Pain. t may be the case that only creditors of a dissolved firm will benefit from any compensation, rather than the business owner, he said.

Poor support

In 2014, the FCA commissioned a review of the work of GRG. On Tuesday, the FCA said it found there was no widespread practice of transferring customers to GRG for their value, or requesting cash injections when the bank had no intention of supporting the business. Small businesses that were transferred to GRG “were exhibiting clear signs of financial difficulty,” the FCA said. However, the bank did fail to support businesses “in a manner consistent with good turnaround practice”, including “placing an undue focus on pricing increases and debt reduction without due consideration to the longer term viability of customers”. RBS’s announcement coincides with the appearance before the Treasury Select Committee of Andrew Bailey, FCA chief executive. A report three years ago by the government’s then entrepreneur in residence, Lawrence Tomlinson, accused the taxpayer-owned bank of deliberately putting viable businesses on a path to destruction while aiming to pick up their assets on the cheap. The allegations were supported by a cache of documents, passed by a whistleblower to BuzzFeed News and BBC Newsnight last month. The documents confirmed that bank staff were rewarded with higher bonuses based on fees collected for “restructuring” business customers’ debts – cutting the size of their loans and getting cash or other assets from the customer.

‘Customers let down’

In what was described by an RBS executive as “Project Dash for Cash”, staff were asked to search for companies that could be restructured, or have their interest rates bumped up. Last month, the bank told Newsnight: “RBS has been very clear that GRG’s role was to protect the bank’s position… In the aftermath of the financial crisis we did not always meet our own high standards and we let some of our SME customers down. “Since that time, RBS has become a different bank and significant structural and cultural changes have been put in place, including how we deal with customers in financial distress.”

BBC News



Taxpayer bailouts for banks ‘too big to fail’ to end by 2022

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The UK’s banks should no longer be “too big to fail”, under revised rules announced by the Bank of England. The regulations will force banks to hold enough money from their investors to absorb losses without help from the taxpayer. If any bank does face collapse, the funds will be spent to finance an orderly wind-down. The Bank’s governor, Mark Carney, said the new rules were a “significant milestone”. “The implementation of [the rules] will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds, and whilst allowing households and businesses to continue to access the services they need,” he said. About 400 banks and building societies will have to hold a collective cushion of £223bn, raised by selling bonds (glorified IOUs) to investors, but the current shortfall is estimated at only £20bn.

Banking crisis

The new rules were first suggested in the aftermath of the 2008-2009 banking crisis when the UK government had to spend £115bn to rescue the Lloyds Banking Group and the Royal Bank of Scotland from imminent collapse. The then chancellor, Alistair Darling, said at the time that RBS had been within just a couple of days of having to shut down its ATM machines because it was about to run out of cash. At one point, the direct government subsidy to the entire UK banking industry reached more than £1tn, according to the National Audit Office. If an insolvent bank does have to be rescued by being sold off or broken up, the investors’ funds will be used to keep it going in the interim without taxpayers being asked to dip into their pockets. International rules already require the world’s biggest banks, some of which are based in the UK, to have similar financial cushions in place by 2019. The new UK rules will widen the requirements to all UK banking institutions and will be introduced in two stages: interim requirements by 2020 and then final rules by 2022. The final date represents a two-year extension by the Bank from its original proposals, which have been the subject of consultation with the banking industry. “Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks,” the Bank said. “Banks are now also structured in a way that supports resolution. “The Bank of England now has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail,” it added.

‘Too big to fail’

The size of the financial cushion will be decided individually for each bank. However smaller banks, building societies and investment firms – those with fewer than 80,000 accounts – whose collapse would not disrupt the banking system, will not have to raise fresh cash. They will simply have to continue covering savers under the requirements of the Financial Services Compensation Scheme (FSCS). The 2008-2009 banking crisis triggered a short but deep recession which led to a big cut in living standards for millions of people in the UK. The sight of some of the most highly paid individuals in the country being rescued from a problem produced by their own reckless behaviour, produced widespread anger. The financial authorities in the UK and internationally decided that taxpayers should not be on the hook for failed banks in the future. “During the financial crisis, governments were forced to bail out failing banks, rather than risk the damage that a disorderly failure would have had on the wider economy and financial system,” the Bank said. “Some banks were too big to be allowed to fail,” it pointed out.

By Ian Pollock Business reporter, BBC News


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