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Bank of England blasts Lloyds for rigging bailout funding

Staff writer |
The Libor-rigging scandal took a new twist when Lloyds Banking Group faced accusations of unlawful behaviour after being ordered pay compensation to the Bank of England for manipulating the fees it paid for emergency funding during the height of the banking crisis.

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In addition to 218 million pounds of fines from regulators in the UK and US for rigging the benchmark rate, the 24% taxpayer-owned bank was ordered to pay Threadneedle Street nearly 8 million pounds.

The fines imposed on Lloyds cover two main issues, manipulating Libor, for which seven other firms have been punished, and, for the first time, rigging another rate, known as the repo rate. This repo rate was used to calculate the scale of the fees paid to the Bank of England for its special liquidity scheme (SLS) which was created to pump money into the financial system amid fears banks were facing a credit crisis.

The Bank of England said Lloyds' manipulation of the repo rate was "highly reprehensible and clearly unlawful".

Regulators on both sides of the Atlantic published emails and electronic chats exposing evidence of manipulation. In one exchange, a Lloyds trader remarks when asked about reducing a Libor rate: "every little helps... It's like Tescos".

Unlike other Libor penalties, Lloyds is also paying the Bank of England 7.8 million pounds in compensation because of the lower fees being paid for the SLS, which was introduced in April 2008 and closed in January 2012.

In a harshly worded letter, the Bank of England governer Mark Carney said this scheme was intended to help banks get through the worse of the financial crisis as Lloyds TSB rescued HBOS, which owned Halifax and Bank of Scotland. "Such manipulation is highly reprehensible, clearly unlawful and may amount to criminal conduct on the part of the individuals involved."

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