Royal Bank blasted for role in Libor

Officials hit over missteps, lack of trader control

LONDON — British politicians Monday took aim at the Royal Bank of Scotland for its role in a rate-rigging scheme, accusing management of fostering a profit-driven culture that encouraged traders to skirt the law.

In nearly four hours of testimony to Parliament’s commission on banking standards, current and former bank executives faced questions over management missteps, deficient controls, and the broader environment that prompted employees to report false rates. The senior executives acknowledged that they missed the problems, as they focused on reviving the bank after the financial crisis.

‘‘The behavior was the disgraceful failure of individuals,’’ Stephen Hester, the bank’s chief executive, said during the hearing. ‘‘We were slow to recognize that behavior and catch it.’’


The Royal Bank is dealing with the fallout from the global investigation into rate manipulation, which has ensnared more than a dozen banks.

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Last week, the financial firm agreed to pay a $612 million fine to settle accusations by US and British regulators that traders influenced major benchmark rates to bolster profit. As part of the settlement, the Justice Department forced the firm’s Japanese unit to plead guilty to felony wire fraud.

While the settlement follows similar deals with Barclays and UBS, the case against the Royal Bank has also proved to be politically sensitive. The bank is 82 percent owned by British taxpayers after it received a multibillion-dollar bailout during the financial crisis.

“There would be enormous anger if UK taxpayers pick up the tab for the individual sins of traders who were trying to rig Libor rates,’’ said Pat McFadden, a Labour politician who sits on the parliamentary commission.

The case centers on the major benchmark rates like the London interbank offered rate, or Libor. Such rates underpin trillions of dollars of financial products like corporate loans and mortgages.


In the settlement, British and US authorities detailed an effort to manipulate the rate-setting process, a five-year scheme that involved multiple currencies and countries. They claimed that the bank ‘‘aided and abetted’’ other financial firms, including UBS. According to regulatory filings, the Royal Bank failed to monitor the submissions of benchmark rates, and employees continued to report false rates even after authorities began to investigate the wrongdoing.

‘‘It has brought shame against the bank,’’ Rory Phillips, a lawyer working behalf of the commission, said at the hearing.

Senior executives said in testimony that Libor was not a major focus for the Royal Bank, which almost collapsed in 2008 after an ill-advised deal to buy the Dutch financial giant ABN Amro.

‘‘When we took control of the bank, it had had a cardiac arrest,’’ said John Hourican, the former head of the investment banking division, who resigned last week. ‘‘We had to prioritize dealing with the existential threat to the bank.’’

After the subsequent bailout by the British government, senior managers focused on reviving the bank by selling off assets, reducing its workforce, and curbing exposure to risky trading activity.


At the same time, executives said they underestimated the potential for rate-rigging. ‘‘I was not aware that derivatives traders were making these requests,’’ Peter Nielsen, Hourican’s deputy, told British politicians.