The difference between Libor and Dibor tells us why Ireland is failing.
London Interbank Offered Rate (Libor) is an interest rate which British banks charge when they lend each other money. Banks recalculate it every day under precise rules; it is important because thousands of major commercial loans have their interest rates set by reference to Libor.
Barclays, it appears, were supplying false information for the Libor calculation, to manipulate it up or down to suit their exposure to the market. Their customers would then be contracted to pay higher (or be paid lower) interest rates than they should have been. The contracts would have been enforced correctly, but based on bad external data.
Probes began after media speculation in 2008 noting that the Libor interest rate did not appear to reflect market conditions. While nobody has yet been arrested, much less charged or convicted, following intense investigations Barclays Bank have admitted misconduct and paid hundreds of millions in euro in penalties to authorities in Britain and the US.
Within days Barclays chief executive Bob Diamond resigned. Bank chairman Marcus Agius resigned from both Barclays and the British Bankers Association. Britain’s Serious Fraud Office is considering criminal charges. UK Prime Minister David Cameron announced a parliamentary review of the banking sector, led by the chairman of the powerful Treasury Committee. Investigations are beginning into whether other UK banks have been up to similar practices.
If Barclay’s Libor swindle operation was a sophisticated cat-burglar in the night, Anglo Irish Bank seems to have been a daylight smash-and-grab.
The equivalent Dublin Interbank Offered Rate (Dibor) was used by Irish banks, including Anglo, to set interest rates for many of their business customers.
In 2010, Anglo chief exec Mike Aynsley confirmed that, rather than undertaking sophisticated manoeuvres to manipulate the Dibor to its advantage, Anglo simply lied. Day after day, with client after client, Anglo simply overstated the correct interest rate by a margin of one-quarter to one-half of a percentage point. The false rates may have accounted for 10 per cent of Anglo profits, for up to a decade.
Dibor is publicly-available information, so they were betting that nobody would notice that the rates they were being charged were wrong. For nearly 15 years, it seems, nobody did.
While the UK and US corporate justice systems are far from ideal, they are at least imposing heavy fines; senior people are losing their jobs, and some may yet lose their liberty. In Ireland, despite clear indications fraud, nobody has been arrested, no investigations have been started, nobody has been appointed to find the guilty.
And nobody has been tasked with making sure it never happens again. Which is why it will happen again.
Knowledge of this fraud has been in the public domain for nearly two years, although it was very thinly reported – the word ‘Dibor’ was not mentioned even once in Irish mainstream news sources in relation to this scandal. Nobody is noticing still. Nobody is noticing, nobody is being prosecuted, and nothing is changing. That is why Ireland is failing.
