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Even in an era of financial deception -- of firms
peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and
terrorists -- the manipulation of Libor stands out for its breadth and audacity. Details are only now revealing just how far-reaching the scam was. “Pretty much anything you could do to increase the revenue
of your organization appeared legitimate,” says Martin Taylor, chief executive officer of London-based Barclays Plc
from 1994 to 1998. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial
markets were saints, but you expect some moral standards.” Where Libor is set each day affects what families pay on their mortgages, the interest on savings
accounts and returns on corporate bonds. Now, banks are facing a reckoning, as prosecutors make arrests, regulators impose
fines and lawyers around the world file lawsuits claiming the manipulation pushed homeowners into poverty and deprived brokerage
firms of profits.
cost Fannie Mae and Freddie Mac more than $3 billion, according to an estimate by a government watchdog, who recommends the
government-owned mortgage giants sue the big banks. That estimate and legal advice were made in a private report by Steve
Linick, the inspector general for the Federal Housing Finance Agency, the regulator for Fannie and Freddie, which were taken
over by the U.S. government during the financial crisis. The report...was in a memorandum prepared by the FHFA watchdog's
staff and delivered to FHFA Acting Director Edward DeMarco on Nov. 2...“We conducted a preliminary analysis of potential
Libor-related losses at Fannie and Freddie and shared that with FHFA, recommending that they conduct a thorough review of
the issue," Kristine Belisle, a spokeswoman for the FHFA inspector general, said...
U.S. prosecutors charged two former UBS traders on Wednesday with taking part in a multi-year scheme to manipulate Libor and other benchmark interest rates,
making them the first individuals to be criminally accused in the international scandal. Earlier on Wednesday, the Swiss bank admitted to fraud and bribery in connection
with efforts to rig the interest rates and agreed to pay $1.5 billion in fines to regulators in the United States, UK and
Switzerland. The charges against the two traders,
Tom Hayes and Roger Darin, resulted from a broad investigation into the activities of more than a dozen banks in the setting
of prices for Libor and related rates.
In settling with U.S., UK and
Swiss authorities, UBS not only paid one of the largest fines ever imposed on a bank, its Japanese subsidiary pleaded guilty
to one U.S. criminal count of fraud relating to manipulation of benchmark rates, including the yen Libor. The Japanese subsidiary is where authorities allege much of the manipulation
of interest rates occurred, as employees of the bank looked to profit on derivatives trades linked to the rates.
UBS is the second large international
bank to reach a settlement with U.S. and UK authorities, and other settlements are expected to follow in the next few months.
In June Barclays Plc agreed to pay $453 million in fines to settle allegations its employees attempted to manipulate Libor
Even though the Rothschild Press/Reuters article writes that ”
. . . senior managers at the Swiss bank directed dealers to keep Libor submissions low during the financial crisis to make
the bank look stronger”, which involved at least 45 people at UBS and of course ” . . . never detected by compliance
staff,despite five audits“, the news is that regulators/prosecutors are
going after a few traders? Thus far,
the limp wristed regulator and prosecutor crowd stated that36 UBS bankers were “implicated” in Libor, which meant that some of themmaybe subject to criminal charges and now, we have the story that senior management
were actively involved and compliance looked the other way, numerous times? The story is not adding up, because the obvious
implication written up by Reuters is that executives and everyone around them knew about this crime syndicate, probably directed
encouraged, and helped plan it.
The most active political action committee in the weeks after the election
belonged to the U.S. subsidiary of Swiss banking giant UBS AG. The company gave $122,000 in the three weeks following Election
Day, the latest period for which information is available...UBS
has been ramping up its political giving in the past few years at the time that it has been sharply criticized, and even penalized,
in Washington. UBS announced Wednesday that it has agreed to pay a$1.5 billion settlementwith
the U.S., British and Swiss governments for trying to manipulate a key interest rate used to price borrowing around the world.
$122,000 in contributions from Nov. 7 through Nov. 26 are more than twice the $51,500 given by the second-most-active PAC,
belonging to the Credit Union National Association...TheUBS PACfavored Democrats, giving $26,000 to 10
party members of the House Financial Services Committee, including Reps. Gregory W. Meeks (N.Y.) and Michael E. Capuano (Mass.).
“The reality about Libor is that
it’s so broadly used on trillions of dollars of contracts that we can’t just decide to throw it out and start
from scratch,” saidPeter Shapiro, managing director of the Swap Financial Group. “It’s
best to figure out how to make it better and less vulnerable to manipulation.” No one knows precisely how widely the world uses Libor, officially called the London
interbank offered rate. But most analysts estimate it determines rates for hundreds of trillions of dollars’ worth of
derivatives as well as tens of trillions in lending to businesses and consumers fromMadridtoManhattan.
Chase & Co.,Bank of America Corp.and
10 other lenders were sued by a group of U.S. homeowners who claim the banks conspired to manipulate the benchmark Libor rate,
driving up the cost of mortgage loans...one of several class action, or group, lawsuits seeking to hold banks responsible
for the alleged manipulation of the rate used as a borrowing-cost benchmark. “Defendants’ anticompetitive conduct
had severe adverseconsequences on the
plaintiffs by increasing the interest rate charged on their LIBOR-based loans and causing them to suffer financial losses,”
the borrowers said alleging conspiracy from January 2000 to February 2009 violated U.S. racketeering laws...
States and municipalities are projected to lose
at least $6 billion because of manipulation of the London Interbank Offered Rate...Those entities bought about $500 billion
in interest-rate swaps before the financial meltdown.
Manipulation of the London interbank offered rate
cost issuers in the $3.7 trillion municipal-bond market at least $6 billion...Any taxpayer losses on derivative deals linked
to Libor would add to at least $4 billion in payments that localities have already made to unwind backfiring interest-rate
swaps sold by Wall Street banks as hedges to cut borrowing costs
the screws on troubled banks Friday, vowing to overhaul a "broken" Libor interest rate system that damaged the financial sector's
reputation and threatening to imprison those who abused it. The Financial Services Authority (FSA) watchdog made the proposals in an independent report that was
commissioned by British finance minister George Osborne in the wake of this year's notorious Barclays rate-rigging affair.
British banks, already being forced
to ringfence retail and investment operations, were facing even more pressure from authorities to reform and prevent a new
global financial crisis. "The reason
we are here is that we have been misled," FSA managing director Martin Wheatley said
U.S. investigators conducting a criminal probe of interest-rate
manipulation have asked their British counterparts for permission to interview London traders, two people familiar with the
investigation said. The U.S. Department of Justice filed a request with the U.K. Home Office for access to dozens of bankers
in conjunction with British prosecutors that are also investigating the rate rigging, said one of the people...
The move may indicate the U.S. wants to pursue criminal charges
against individuals in the U.K. that could lead to extradition...Regulators from Tokyo to London to New York are probing how
derivatives traders and bankers who submitted interest-rate data colluded to rig benchmarks including the London Interbank
"I talked with some of my more experienced colleagues about this. They told
me banks misreported the Libor rates in a way that would generally bring them profits. I had been unaware of that, as I was
relatively new to financial trading. My naivety seemed to be humorous to my colleagues."
Top European and US regulators have warned that
individuals involved in manipulating key borrowing rates should face criminal prosecutions.
European authorities are conducting their own investigation
into how the world’s key borrowing rate could have been manipulated for several years but have yet to bring any charges.
The Serious Fraud Office has said it believes there
could be grounds to bring criminal actions against some of those involved in rigging Libor.
Interest rates all over the world are mostly made
That's the verdict of a new study by the International Organization of Securities
Commissions, a copy of which was obtained by Bloomberg. It found that more than
half of the benchmark lending rates in the U.S., Europe and Asia are "calculated by methodologies that were unclear, not transparent
and only rarely subject to specific regulatory standards or obligations." Less than half of all benchmark lending rates, in
contrast, were based on actual market transactions. In
other words, the interest rates that affect personal and business loans, and hundreds of trillions of dollars in derivatives
contracts around the world, are based on either guesses or lies: Not particularly comforting.
“The risk of manipulation will be greater where participants
in the process have both incentive and opportunity to submit inaccurate data or apply a methodology inaccurately,” IOSCO
wrote, according to Bloomberg. “Furthermore, where judgment is required in determining the data to be submitted, the
problem is particularly acute.” English translation:
When banks can just make up these benchmark numbers, they're likely to cheat. Even when they can't just totally make up the
numbers, they still try to find ways to cheat.
The LIBOR “scandal” could have far-reaching implications for financial institutions in the United States and global
markets. It is hard to know exactly how the issue will play out. The Department of Justice is definitely gearing
up to lead or play a significant role in a wide-ranging criminal and civil investigation.
LIBOR stands for
London Interbank Offered Rate. It's supposed to measure the average interest rate that banks charge when they lend to each
other. LIBOR is also used as a foundation for other rates (such as the reset of adjustable rate mortgages) and a reference
point for complex financial derivatives.
By one measure,
some $300 trillion in loans or derivative contracts are pegged to LIBOR. That's 20 times the size of one year's economic output
in theUnited States.
LIBOR rates are determined by major banks. The banks report interest-rate estimates to theBritish Bankers Association, and the firmThomson Reutersaverages them to provide daily LIBOR numbers. The catch:
The banks provide the numbers on an honor system. That's different from gathering data on observable transactions.
sheer volume of contracts based on LIBOR defies the imagination. Estimates vary, but $500 trillion seems reasonable. Even
if the banks lied by as little as one-tenth of 1 percent, that percentage applied to $500 trillion multiplied by the six years
of the fraud comes to $3 trillion stolen from customers. Cutting that amount in half to allow for the fact that some customers
benefited from the fraud while others lost still gives implied damages of $1.5 trillion, greater than the combined capital
of all of the too-big-too-fail banks in the United States. Taken to the full extent of the law, these damages are enough to
render a large segment of the global banking system insolvent. These damages will be pursued not by regulators, but in private
lawsuits by class action lawyers.
U.S. prosecutors and European regulators are close to arresting individual
traders and charging them with colluding to manipulate global benchmark interest rates, according to people familiar with
a sweeping investigation into the rigging scandal...
The prospect of
charges and arrests means prosecutors are getting a fuller picture of how traders at major banks allegedly sought to influence
the London Interbank Offered Rate, or Libor, and other global rates that underpin hundreds of trillions of dollars in assets.
The criminal charges would come alongside efforts by regulators to fine major banks, and could show that the alleged activity
was not rampant at the lenders...
Beyond regulatory penalties and criminal charges, banks face a growing number of civil lawsuits
from cities, companies and financial institutions claiming they were harmed by rate manipulation. Morgan Stanley recently
estimated that the11 global
banks linked to the Libor scandal may face $14 billion in regulatory and legal settlement costs through 2014.
Criminal and civilinvestigations focus on how banks set the London
interbank offerted rate, known as Libor
As regulators ramp up their global investigation into the manipulation of interest
rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the
scandal. The department’s criminal division is building cases against several financial institutions and their employees,
including traders atBarclays, the British bank...
Authorities around the globe are examining whether financial firms manipulated interest rates before
and after the financial crisis to improve their profits and deflect scrutiny about their health...The
multiyear investigation has ensnared more than 10 big banksin the United States
hard to imagine a bigger case than Libor,” said one of the government officials involved
in the case.
states, towns and other municipalities arerounding up posses of lawyersto sue big
banks over their manipulation of Libor, a short-term interest rate that affects borrowing costs throughout the global economy.
Barclays has admitted to manipulating the rate for years, paying$450 millionin penalties.
Other banks are under investigation for doing the same thing....efforts to calculate potential losses are complicated by the fact that
Libor is used to determine the cost of thousands of financial products around the globe each day...the sheer vastness
of the derivatives market makes this a potentially huge headache for the banks. There's a general estimate floating around
that Libor affects about $800 trillion in notional derivatives -- that's "trillion," not "billion" or
...people with derivatives contracts tied to Libor lost tiny percentages of that $800 trillion with some regularity because of Libor manipulation. Some municipalities...estimate Libor manipulation
cost them millions of dollars -- $13 million in the case of Nassau County, New York, for example.
As many as 20
big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged.The scandal also corrodes further what little remains of public trust in
banks and those who run them......those involved
in setting the rates have often had every incentive to lie, since their banks stood to profit or lose money depending on the
level at which LIBOR was set each day. Worse still, transparency in the mechanism of setting rates may well have exacerbated
the tendency to lie, rather than suppressed it. Banks that were weak would not have wanted to signal that fact widely in markets
by submitting honest estimates of the high price they would have to pay to borrow, if they could borrow at all.
Two big changes are needed. The first is to base the rate on actual lending data where possible.
Some markets are thinly traded, though, and so some hypothetical or expected rates may need to be used to create a complete
set of benchmarks. So a second big change is needed.Because
banks have an incentive to influence LIBOR, a new system needs to explicitly promote truth-telling and reduce the possibilities
for co-ordination of quotes...the real obstacle to change is not a lack of good ideas, but a lack of
will by the banks involved to overturn a system that has served most of them rather well. With lawsuits and prosecutions gathering
pace, those involved in setting the key rate in finance need to get moving. Adding a calendar note to “Fix LIBOR”
just won’t do.
Barclay's employees on at least three continents
spent years lying in order to fix benchmark interest rates that help determine the value of about $10 trillion of global debt
and $350 trillion in derivatives, mostly swap contracts. For instance "Barclays based its LIBOR submissions for US Dollar... on the requests of Barclay's swaps traders, including
former Barclays swaps traders, who were attempting to affect the official published LIBOR, in order to benefit Barclays' derivatives
The daily LIBOR fixing by the BBA is based on self-reporting
from major financial institutions on the cost of short-term unsecured borrowing. Though it's based on the honor system (a
regulatory failure if ever there was one) that daily fixing is used as a benchmark that effects the prices of swaps and debt
instruments in dollars, pounds, yen, and euros. So if you can fiddle the LIBOR number, you can manipulate markets to your
By messing with the LIBOR benchmark
rates that are tied to an estimated $800 trillion of securities, the offending banks essentially played with matches in the
middle of the world's largest house of leveraged cards. The combined gross domestic product of all the nations of the world
is only about $70 trillion, so the towering mountain of LIBOR-connected securities out there climbs into the realm of leveraged
derivatives like those that nearly brought the global financial system to its knees at the height of the 2008 credit
crisis. First by building that leveraged house of cards in the first place on a completely obscene scale, and then by shaking
its very foundation by manipulating the interest rates on which all that paper is based, the rate-rigging banks took unthinkable
risks with the fate of the entire global financial system. Moreover, the manipulation could have affected you personally
in any number of ways. If you have an adjustable-rate mortgage or an auto loan that's tied to LIBOR, the interest charged
to you could have been tweaked upward or downward depending upon the direction of a particular manipulative impact. If
you own stock, the companies in your portfolio may have been cheated out of revenue from interest rate hedges...Pension funds,
furthermore, routinely hold income-generating securities in which payments are based upon LIBOR. Municipalities likewise hedge
interest rate exposures through derivatives...
...unfortunately there is but
one inescapable conclusion to draw from LIBOR-gate and the vast array of 21st-century banking scandals: Where opportunity
and motive coincide for banks to pursue their own agenda through secretive and unsavory means, it seems far safer to presume
that they will rather than to trust that they will not.
There are really two different Libor scandals. One has to do with
a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than
the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world
known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008. But the other
scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it
might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives
would be profitable. This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us –
whose money they’ve used for to make their bets – losers and chumps.
Perhaps the biggest lesson from the Libor scandal
is how dangerous it is to rely on interested parties to set interest rates or prices of financial instruments, rather than
on actual transactions conducted by investors. The Libor has been set in the current and vulnerable manner since the late
Barclays detailed in its account to parliament how it thought British
authorities had indicated they were happy for it to make a lower submission to the London interbank offered rate - known as
Libor - when markets were in turmoil and confidence in banks fraying...
"What Bob Diamond or Barclays appear to be saying is that the Bank
(of England) told them to do this,"
An international probe into alleged interest rate
fixing that led to $453 million in fines against Barclays Bank is taking aim at four other banks, including Citigroup,
UBS, HSBC and Royal Bank of Scotland, British officials said...British Treasury chief George Osborne said the four banks were being
probed for allegedly providing false figures on key interest rates upon which mortgages and consumer loans are priced...The
probe is part of a multiyear investigation into whether banks manipulated the key rate during the financial crisis to help
boost profits and hide their ailing financial condition.
U.S. and British agencies...imposed fines totaling $453 million on Barclays
for submitting false data used in setting the London interbank offer rate (LIBOR), a key market index, between 2005 and 2009,
to make its financial position appear stronger.
U.S. and British investigators say the employees of Barclays — and
possibly those of other major international banks — clearly knew it was wrong to manipulate the London interbank office
rate. The scandal has added fuel to public anger at the banking industry, whose executives face mounting accusations of being
overpaid and unethical, and politicians from across the political spectrum were taking on the industry with tough language.
Urgent changes to the way banks are run and regulated are needed to restore public
confidence after the Libor rate-rigging scandal, an MPs' report says...The Treasury Select Committee blames bank bosses for
"disgraceful" behaviour which damaged the UK's reputation - the bank says it knows changes are needed. The MPs also criticise
the FSA and Bank of England's regulatory supervision. And they accuse ex-Barclays chief executive Bob Diamond of giving them
"highly selective" evidence.
banks, including HSBC and Royal Bank of Scotland, are to be questioned in the US for alleged manipulation of the Libor inter-bank
lending rate. Barclays, Citigroup, Deutsche Bank, JPMorgan and UBS have also received subpoenas from the attorneys general
of New York and Connecticut...The investigation is predicated on the assumption that at
least one other bank must have colluded with Barclays in any attempts to manipulate Libor rates, which are used as a reference
to price trillions of dollars of financial products.
"Barclays was run through management by intimidation,
and some employees felt it necessary to work 15-hour days due to a brutal appraisals system that left them in constant fear
for their jobs.clays was run through management by intimidation, and some employees felt it necessary to work 15-hour days
due to a brutal appraisals system that left them in constant fear for their jobs...This climate of fear and fierce competition
was encouraged by directors...and those who complained or appeared to crack under the pressure would be 'demoralised' and
slowly 'managed out' of the company...
There have been plenty of banking scandals, but
none quite like this: Investigators and political leaders believe that the manipulation of the Libor benchmark interest rate
was the result of organized fraud. Institutions that participated could face billions in fines and penalties.
Investigators are attacking presumed offenders,
banks that are involved are denouncing others in the hope of mitigating their own penalties, and small investors...inundating
Libor banks with lawsuits.
Deutsche Bank and more than a dozen other financial
giants have come under sharp criticism due to the alleged manipulation of the Libor (London Interbank Offered
Rate), a benchmark interest rate. Some are even referring to the banks that are instrumental in calculating that rate
a cartel, the sort of vocabulary not normally associated with the financial industry.
More than half a dozen government agencies, from
Canada to Japan, are investigating the case.
Berkshire sought undisclosed compensation and punitive
damages and the right to represent other lenders in a group lawsuit, or class action, in a July 25 filing in federal court
in Manhattan. The lender claims in the suit that Libor fraud lowered
interest payments it received.
TheLibor rate rigging scandalhas created “a very major problem” for the City of London because it
has destroyed public trust in a sector that remains a huge contributor to the economy... “The last three weeks have been very bad for the reputation
of British banking. Rebuilding trust will be a huge challenge. But it is a challenge that must be met, given the vital role
the banking industry plays in our market economy.”...
hour-long speech, packed with references to popular financial literature, underscored Lord Turner’s knowledgeable but
sceptical approach to the industry.
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