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.

Merryn

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