Bob Diamond resigns as chief of Barclays after interest rate rigging scam

After the scandal last week in which Barclays Bank was fined £290 million following their attempt to rig the inter-bank lending rate, known as "Libor" (London Interbank Offered Rate), their chief executive Bob Diamond has announced his resignation.

This news follows the resignation on Monday of Marcus Agius, although it is thought he will remain as full time chairman of the banking group until such time a new Chief Executive is found.

Troubled waters

These two resignations are thought to be just the tip of the iceberg with more high profile names expected to go in the coming days. Reports are suggesting that up to fourteen members of the Senior Barclays Management may go, with reports that Mr Diamond’s right hand man, Jerry del Missier will be next to face the axe.

On Wednesday (4^th July) Mr Diamond is to face MPs at the Treasury Select Committee to answer questions on his conduct. It will not be a comfortable meeting for the former Chief. In the wake of the breaking news, the leader of the Labour party in the UK Ed Milliband has called for a criminal investigation to take place into events.

Bank of England now implicated

In a more serious turn of events, it's now also emerged that one of the most senior figures in the Bank of England, Paul Tucker has also been implicated in the scandal after details of a dramatic memo were released, originally sent on 29th October 2008. It states that: "Mr Tucker had reiterated he had received calls from a number of senior figures within Whitehall as to why Barclays was always towards the top end of Libor pricing. Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain we did not need advice, that it did not always have to be the case that we appeared as high as we have recently".

According to the same article, Mr Tucker had long been mooted to take over from Mervyn King as Head of the Bank of England. At the present moment it's not clear whether his position is now untenable.

What now for Barclays?

It's clear that now the Bank of England has been implicated that the scandal has reached a whole new level of seriousness. Since the announcement of Diamond's resignation was made, shares in the bank have fallen by ten percent. More than that, the bank's reputation and reliability now appear to be in tatters too with customer confidence at a low and worries that their loans and investments may not be safe.

For the foreseeable future, it looks as if it won't be plain sailing for the banking group, but in the long term it raises questions about whether there needs to be more responsibility and regulation amongst the top five banking groups in the UK.

How does it affect the customer?

Customers who have, for instance, mortgages and make regular repayments rely on a safe and steady interest rate. Libor is the mechanism which is used to price hundreds of trillions of pounds of financial products like loans and it effectively sets the rate for how much customers pay to borrow.

Many will now be worried that they haven't got adequate mortgage protection insurance to help them should the worst happen. It’s feared that many people have effectively paid over the odds for financial products because of what Barclays have done. It’s possibly a similar outcome to that of the recent Payment Protection Insurance scandal which has ended with hundreds of thousands of pounds to be paid back to customers who paid out over the odds for financial services that they did not, in reality, need.

Current estimates are that there are as many as two hundred and fifty thousand customer mortgages which are linked to Libor. It will be interesting to see how the story unfolds and develops over the next few days and what the eventual outcome will be, though it’s sure to be a long road.

April Pelling is a freelance finance writer from London who has watched the Barclays scandal unfold, interviewing many city bankers anonymously over the last few weeks. Few would have predicted the swift resignations we saw today.

Date: 03.07.2012 [324]