How Lloyds picked our pocket

published 31 July 2014

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.

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What the commentators said

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.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.