LIBOR Manipulation a Black Eye For Global Banks

by Mercator Advisory Group 0

The story has been brewing for a year or more, with little notice outside the world of corporate finance. Financial regulators in Canada, the U.K. and Switzerland have all been investigating the possibility the the critical benchmark London Interbank Offered Rate (LIBOR), pronounced daily by the British Bankers Association, has been manipulated. Similar charges have been made with respect to the lesser-used but still influential Tokyo-based TIBOR and euro-based Euribor. The U.S. Justice Department has now formally joined the investigations.

According to UPI sources:

Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business and a former economist with the U.S. Federal Trade Commission, told CNN even a slight change in Libor rates “can cause massive redistribution of resources because it’s so extensively used.”

Very slight mis-statements in the rates can benefit multinational banks, while generating corresponding costs to borrowers worldwide, both corporate and consumer. Rising costs for corporate borrowers also impact corporate profitability, to the detriment of investors, which is the basis for several civil court actions pending in the U.S., such as this described by Bloomberg:

Charles Schwab Corp., the largest independent brokerage by client assets, sued Bank of America Corp., Citigroup Inc. and other banks in August claiming they manipulated Libor from 2007 in violation of U.S. antitrust law.

Spokesmen for Schwab, HSBC, Barclays and Bank of America declined to comment. An official at RBS couldn’t immediately comment.

UBS, once one of the most respected names in global banking, has sought immunity from regulators in multiple countries including the U.S. and Canada, in exchange for its willingness to provide evidence. Sad to see so many once well-regarded institutions behaving like squabbling teenaged street punks, seeking to escape punishment by selling out their erstwhile partners. Difficult to believe that regulators can pin down the perpetrators, or that they will follow through with punishments sufficient to have a deterrent effect. Hard to feel sympathy for global banks complaining about the burdens of increased regulatory compliance, when once again they have demonstrated an uncanny ability to bring it on themselves.

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