European banks investigated over rate rigging
by Daniel Mason
16 August 2012
Five European banks are among seven to be questioned in the United States over the alleged manipulation of the London interbank interest rate known as Libor, it has been reported. Germany's Deutsche Bank, Switzerland's UBS and three banks from the United Kingdom – the Royal Bank of Scotland, HSBC and Barclays – have all received subpoenas, according to Bloomberg, which cited sources familiar with the matter.
Along with US banks JP Morgan Chase and Citigroup, they have been summoned to provide documents and testimony to a long-running investigation into the fixing of Libor, a key lending rate used to price trillions of dollars of financial products and affecting mortgages and loans.
New York attorney general Eric Schneiderman and his Connecticut counterpart George Jepsen have been examining Libor rigging for more than a year. But the scandal erupted in June when Barclays was fined £290m by regulators in the UK and US after admitting it submitted false rates. It led to the resignation of the bank's chief executive Bob Diamond and prompted the British government to commission a review into Libor.
Currently Libor is set using banks' own estimates of how much it costs them to borrow in a range over currencies over various time periods, making it relatively easy to manipulate. Last month the European Commission described the affair as a "scam" and said it was widening the scope of its proposed legislation on market abuse to include criminal sanctions for the practice.
The latest development comes amid a series of scandals hitting global banks. In July HSBC was criticised in a US Senate report for lax money laundering controls which it said allowed large sums of Mexican drug money to pass through the bank. And this week London-based Standard Chartered reached a £217m settlement with regulators in New York over claims that it hid transactions with Iran that broken US sanctions against Tehran.
Writing for PublicServiceEurope.com in July, Arlene McCarthy, vice-chairwoman of the European Parliament's economic and monetary affairs committee, said: "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."
Along with US banks JP Morgan Chase and Citigroup, they have been summoned to provide documents and testimony to a long-running investigation into the fixing of Libor, a key lending rate used to price trillions of dollars of financial products and affecting mortgages and loans.
New York attorney general Eric Schneiderman and his Connecticut counterpart George Jepsen have been examining Libor rigging for more than a year. But the scandal erupted in June when Barclays was fined £290m by regulators in the UK and US after admitting it submitted false rates. It led to the resignation of the bank's chief executive Bob Diamond and prompted the British government to commission a review into Libor.
Currently Libor is set using banks' own estimates of how much it costs them to borrow in a range over currencies over various time periods, making it relatively easy to manipulate. Last month the European Commission described the affair as a "scam" and said it was widening the scope of its proposed legislation on market abuse to include criminal sanctions for the practice.
The latest development comes amid a series of scandals hitting global banks. In July HSBC was criticised in a US Senate report for lax money laundering controls which it said allowed large sums of Mexican drug money to pass through the bank. And this week London-based Standard Chartered reached a £217m settlement with regulators in New York over claims that it hid transactions with Iran that broken US sanctions against Tehran.
Writing for PublicServiceEurope.com in July, Arlene McCarthy, vice-chairwoman of the European Parliament's economic and monetary affairs committee, said: "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."
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