Banks and regulators to be called to account on Libor scandal
by Arlene McCarthy
23 July 2012
Some US bankers and regulators face criminal investigations with large fines and custodial sentences of up to 14 years - Europe could learn from this – writes MEP
The London inter-bank lending rate or Libor is one of the most crucial interest rates in finance. Some $350 trillion in derivatives and around $10 trillion in loans are set according to Libor. As far back as 2008, there were already concerns that banks and traders were conspiring to rig the benchmark. Barclays has already been fined £290m in the United Kingdom and the United States and regulators have now extended their investigations to at least four of Europe's biggest banks: Crédit Agricole, HSBC, Deutsche Bank and Société Générale.
But why should we be so concerned about an inter-bank lending rate? The concern for individuals is that this is also the benchmark for pricing some UK residential mortgages, more commonly for commercial mortgages, and increasingly for pricing commercial loans by banks to British businesses. The exact extent to which individuals have been affected by this rate rigging is not yet fully known and will not be for some time, but it is estimated that in the last 10 years at any one time about 250,000UK residential mortgages would have had a home loan linked to the Libor rate.
The Libor scandal is market manipulation of the worst kind. Fines have proved ineffective and have not changed the culture in the banking industry. We must therefore look to criminal sanctions as a penalty and deterrent for this rogue behaviour. The Justice Department in the US and the Serious Fraud Office in London are currently considering whether it is possible to pursue criminal charges against the perpetrators. America has the power to conduct criminal investigations with large fines and custodial sentences of up to 14 years in certain cases. We have moved swiftly in the European Parliament to take action, by amending the current market abuse rules widening the scope to cover key interest rates such as Libor and Euribor and other systemically important benchmarks and indices.
During a visit to the US last week, I met with the US commodity futures trading commission - which launched the investigations in America and passed files to the Department of Justice for criminal prosecution. We exchanged ideas on how we can toughen up our rules on this abuse, to prevent future rigging of rates and to ensure full disclosure of all relevant data and evidence. It is astonishing that it has taken years to get information and emails from the banks on the Libor fixing and that some banks are still not providing information on request.
A full hearing of the European Parliament Economic and Monetary Affairs Committee, into the interest rate rigging scandal, will enable us to better understand the lessons from this crisis. The more information that comes to light on the extent and gravity of this scandal, the more urgent it is for the ECON committee to call in the banks - to answer for their manipulation and regulators to account for their failures. We must ensure we have a robust legal and regulatory framework to prevent future manipulation or abuse and its potentially devastating consequences for the European and global economy, and the continued crisis of confidence in banks and financial markets.
Arlene McCarthy MEP is vice-chairman of the Economic and Monetary Affairs Committee in the European Parliament
The London inter-bank lending rate or Libor is one of the most crucial interest rates in finance. Some $350 trillion in derivatives and around $10 trillion in loans are set according to Libor. As far back as 2008, there were already concerns that banks and traders were conspiring to rig the benchmark. Barclays has already been fined £290m in the United Kingdom and the United States and regulators have now extended their investigations to at least four of Europe's biggest banks: Crédit Agricole, HSBC, Deutsche Bank and Société Générale.
But why should we be so concerned about an inter-bank lending rate? The concern for individuals is that this is also the benchmark for pricing some UK residential mortgages, more commonly for commercial mortgages, and increasingly for pricing commercial loans by banks to British businesses. The exact extent to which individuals have been affected by this rate rigging is not yet fully known and will not be for some time, but it is estimated that in the last 10 years at any one time about 250,000UK residential mortgages would have had a home loan linked to the Libor rate.
The Libor scandal is market manipulation of the worst kind. Fines have proved ineffective and have not changed the culture in the banking industry. We must therefore look to criminal sanctions as a penalty and deterrent for this rogue behaviour. The Justice Department in the US and the Serious Fraud Office in London are currently considering whether it is possible to pursue criminal charges against the perpetrators. America has the power to conduct criminal investigations with large fines and custodial sentences of up to 14 years in certain cases. We have moved swiftly in the European Parliament to take action, by amending the current market abuse rules widening the scope to cover key interest rates such as Libor and Euribor and other systemically important benchmarks and indices.
During a visit to the US last week, I met with the US commodity futures trading commission - which launched the investigations in America and passed files to the Department of Justice for criminal prosecution. We exchanged ideas on how we can toughen up our rules on this abuse, to prevent future rigging of rates and to ensure full disclosure of all relevant data and evidence. It is astonishing that it has taken years to get information and emails from the banks on the Libor fixing and that some banks are still not providing information on request.
A full hearing of the European Parliament Economic and Monetary Affairs Committee, into the interest rate rigging scandal, will enable us to better understand the lessons from this crisis. The more information that comes to light on the extent and gravity of this scandal, the more urgent it is for the ECON committee to call in the banks - to answer for their manipulation and regulators to account for their failures. We must ensure we have a robust legal and regulatory framework to prevent future manipulation or abuse and its potentially devastating consequences for the European and global economy, and the continued crisis of confidence in banks and financial markets.
Arlene McCarthy MEP is vice-chairman of the Economic and Monetary Affairs Committee in the European Parliament
COMMENTS
I feel a 'perp walk' coming on.
Ed Pefferman - Issaquah, Wa.
