How Lloyds picked our pocket

Lloyds is being fined £218m as part of a settlement with UK and US authorities. It admitted fiddling the rates used to calculate its fees for accessing the Bank of England’s Special Liquidity Scheme (SLS) during the 2008-09 financial crisis.

The SLS was a crucial funding lifeline, allowing the banks to borrow when the interbank market dried up. The rate used to calculate the charge was the repo rate, at which the government buys back government securities from commercial banks.

The cost to the taxpayer was £8m in fees, which the bank has now had to pay back. Mark Carney, the Governor of the Bank of England, condemned Lloyds’ behaviour during the crisis as “highly reprehensible” and suggested that criminal charges could follow.

What the commentators said

Robbing the Bank of England “is well nigh impossible”, said Jonathan Guthrie in the FT, “what with its impregnable vaults and forbidding receptionists”. But Lloyds traders managed it “without even using gelignite”.

This is the “most dispiriting” scam so far in the ongoing scandal over banks’ benchmark interest rate manipulation. Fiddling rates to reduce the fees Lloyds paid for taxpayer support “was like a bankrupt picking the pocket of a charitable benefactor”.

“The sheer outrageousness of this far outstrips the gains to the bank,” noted Paul J Davies in The Wall Street Journal. Lloyds’ actions reduced the cost of funding by £7.76m. But as Lloyds fiddled an industry-wide benchmark, that saving went to the entire banking industry. All told, Lloyds itself saved less than £4m out of its total fees of £1.28bn.

That’s a sad reflection of the deeply ingrained “culture of chicanery” in the sector, said Iain Martin on Telegraph.co.uk. “Ripping off those keeping a roof over your head became natural.”

It undermines public confidence that no senior public bankers have been held legally to account for their part in the financial crisis, agreed the FT. It’s about time the authorities made an effort.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Powering ahead

The best alternative energy stocks

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


28 April 1789: Fletcher Christian leads the mutiny on the Bounty 

Shortly after leaving the beautiful island of Tahiti for home, Fletcher Christian led a mutiny against Lieutenant William Bligh on board HMS Bounty, on this day in 1789.

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.