The rate rigging scandal in United Kingdom’s Barclays Bank has a ripple effect more than what meets the eye.
So far the scandal has claimed the jobs of the CEO and Chairman, both of them seem to agree that the brand equity of Barclays is going to be tainted.
The scandal came to light when Barclays agreed to pay US$453 million in fine to the United State Justice Department for rate fixing or manipulating short-term interest rates that is used as standard for consumer bank loans and mortgages. Barclays were manipulating this to its advantage.
The rate we are talking about here is Libor rate (London Interbank Offer Rate).
Bank of Namibia has, however, said it was too early to panic since investigations are ongoing.
Acting director of Strategic Communications and Financial Sector Development Department, Emma Haiyambo said they will have to wait until full investigations are completed.
"It is too early to make any specific comment at this stage. We have learnt that investogations are ongoing and we shall wait until the full investigation is completed to see what the impact would be in this regard," she said last week Friday.
Libor may include the word London but it is a global rate used for Trillions of dollars globally.
Namibians are also part of this global family. There are companies that seek financing from Europe and beyond and they deal beyond region where the only common rate is the Libor.
Libor is a “wholesale” rate between largest and most sophisticated financial institution in the world. The rest of us pay a “retail” on top of it (Libor+ x %)
Namibia could have been prejudiced since the scandal started but most of it will be historical and will not actually show. Let’s us review how this could have affected us - yaa you and me.
First and foremost, the scandal could and will affect our borrowing especially against the European funders who used Libor plus a certain percentage.
If you have been subjected to such kind of rates in your dealing then what this means is that the Libor rate has been an artificial figure which was being tampered with by guys similar to those from Barclays, so the interest rate we thought we truthfully were actually not, it was either very expensive or very cheap. So what? Some may ask.
Cumulatively, if the whole of Namibia borrowed US$1 billion with a day’s manipulation this could have caused a drain of nearly hundreds of thousands of dollars in interest only.
The other area that affects Namibians in relation to the current Libor scandal is through the use of credit cards. People who used credit cards will have their loans pegged at the Libor rate.
Big savers were also affected. Most savings rates set by the building societies and banks have little connection with Libor, so small savers are unaffected.
But if you are a big institution – such as the treasurer of a local authority or large charity – you tend to deposit your balances into short-term accounts where the interest paid is linked in some way or another to Libor. These deposits would have received a lower rate of interest than they would otherwise have earned. So they are out of pocket – and may now want the banks to repay them.
Today if you want to go and borrow money, a bank shouldn’t just charge you 70% because they feel like it or because you are ignorant, no they should abide by the rules and regulations.
The culture at Barclays has to do with selfishness, God forbid we don’t want to be subjected to a dog eat dog situation. That’s not a good culture to teach the young ones.
Libor like we mentioned before combines a lot of rates and influences the set of mortgage, car loans (Fixed rates) though at a margin. Some analysts think the manipulation of these rates was one of the root causes of the financial crisis.
But as indicators are pointing Libor, was manipulated downwards so homeowners who defaulted don’t have much to say rather because they benefited.
Overally the Barclays debacle has thrown our high blood presLocally also we will believe the same guys are doing the same thing. Brand equity is one of the biggest assets a bank can have and surely that comes through integrity.