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Barclays chief executive Bob Diamond has resigned with immediate effect. The move comes less than a week after the bank was fined a record amount for trying to manipulate inter-bank lending rates. Mr Diamond said he was stepping down because the external pressure on the bank risked "damaging the franchise". Chancellor George Osborne welcomed the decision and said he hoped it was the "first step towards a new culture of responsibility in British banking". "It is the right decision for the country," Mr Osborne said, saying the country needed a strong Barclays concentrating on lending and contributing to economic recovery. Chairman Marcus Agius, who had announced his own resignation on Monday, will now take over the running of Barclays until a replacement is found. "I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth," Mr Diamond said in a statement. He will still appear before MPs on the Treasury Committee on Wednesday to answer questions about the Libor affair.
WHAT IS LIBOR? It stands for the London interbank offer rate and is the interest banks charge to borrow from each other. Banks rely on this money to lend to customers and businesses. Its equivalent in Europe is called Euribor. The rate is set every morning by a panel of banks and overseen by trade body the British Bankers’ Association. Each bank sets the rates at which it believes it can borrow, from overnight to 12 months. There are 150 Libor rates, spanning ten currencies and 15 time periods.
HOW DOES IT AFFECT ME? The rate banks pay to raise money affects how much they charge on loans and mortgages. An increase in Libor can add hundreds of pounds to households’ annual mortgage repayments or a loan to a small business. This was seen with dramatic effect in the run up to the financial crisis, when Libor soared and lenders raised their rates. It is also used as the benchmark for trillions of pounds in complex financial investments.
WHAT DID BARCLAYS DO?
Barclays’ traders speculating on movements in interest rates were manipulating Libor in an effort to make huge profits.
Its traders were conspiring with the ‘submitters’ at the bank which lodge their Libor rates every morning. Depending on the way they were betting, traders would urge these submitters to increase the Libor rate or lower it.
Barclays’ traders also conspired with ex-employees working at other banks to try to influence their Libor submissions. During the financial crisis Barclays also fiddled the figures to dupe the market into thinking it was more financially sound than it was.
Libor is often seen as a barometer of how healthy a bank is. Just as customers with bad credit records have to pay higher interest rates, banks which are deemed in poor financial health are charged more to borrow.
Barclays became anxious that its Libor rate was higher than many of its peers and that they were fiddling the figures. It decided to join the party.