The aim of this paper is to use behavioral finance to explain the factors that brought Barclays Plc. to face a £290 million fine (about $440 million), having deliberately tried to manipulate the LIBOR (London Interbank Offered Rate). This sums to the £59.5 million fined by the British Financial Services Authority (FSA) – the highest fine ever imposed by this organization – and respectively £102 million and £128 million by the US Department of Justice and by the Commodity Futures Trading Commission (CFTC). We analyze the reports issued by the U.S. and the British regulatory agencies, and those of financial analysts. Even though the focus of analysis are Barclays’ actions, we compare them with what other market participants did at the time of the analyzed events, to offer a comprehensive look at the financial industry and its dominant culture. In particular, after describing LIBOR rate determination methodology and the behavior of Barclays personnel when violations occurred, we present Barclays’ failures in organizing its own control systems and establishing a proper corporate culture. Finally, we analyze the behavior of market participants and supervisory authority in evaluating Barclays’ financial and ethical performance.

Corporate Culture and Frauds: A Behavioral Finance Analysis of the Barclays-LIBOR Case

CERVELLATI, Enrico Maria
;
2013

Abstract

The aim of this paper is to use behavioral finance to explain the factors that brought Barclays Plc. to face a £290 million fine (about $440 million), having deliberately tried to manipulate the LIBOR (London Interbank Offered Rate). This sums to the £59.5 million fined by the British Financial Services Authority (FSA) – the highest fine ever imposed by this organization – and respectively £102 million and £128 million by the US Department of Justice and by the Commodity Futures Trading Commission (CFTC). We analyze the reports issued by the U.S. and the British regulatory agencies, and those of financial analysts. Even though the focus of analysis are Barclays’ actions, we compare them with what other market participants did at the time of the analyzed events, to offer a comprehensive look at the financial industry and its dominant culture. In particular, after describing LIBOR rate determination methodology and the behavior of Barclays personnel when violations occurred, we present Barclays’ failures in organizing its own control systems and establishing a proper corporate culture. Finally, we analyze the behavior of market participants and supervisory authority in evaluating Barclays’ financial and ethical performance.
Vol. 11, Issue 1, Fall 2013, Continued – 53
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10278/3687335
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