Japanese, Korean Banks Face Scrutiny Over Interest Rates
Japan’s banking lobby said it may review lenders’ interest-rate submissions and South Korean regulators started a probe into possible collusion in money markets, amid widening global scrutiny of key lending rates following the Libor scandal in the U.K.
The Japanese Bankers Association said it’s considering looking at as many as 16 banks to confirm that they follow guidelines for submitting yen-denominated Tokyo interbank offered rates. In South Korea, the antitrust agency expanded an investigation today into whether local brokerages kept certificate of deposit rates artificially high.
Regulators globally are trying to restore investor confidence in benchmark borrowing costs after U.S. and U.K. authorities found that Barclays Plc (BARC) employees rigged London interbank lending rates, leading to a record fine of 290 million pounds ($453 million) levied against the British bank last month. Citigroup Inc. (C) and UBS AG (UBSN) in December were ordered by Japanese regulators to suspend some operations after the banks’ staff were found to have attempted to influence the Tokyo interbank offered rate, or Tibor.
“There’s growing pressure from Japanese lawmakers on the banking industry to determine and confirm that Tibor has been properly submitted and set without any wrongdoing,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “If any bank is found to have attempted manipulation of the rate, it would be a huge problem.”
The Monetary Authority of Singapore said today it will also look into how banks are setting “key market interest rate benchmarks” amid similar reviews by regulators in several international financial centers.
South Korea’s Fair Trade Commission inspected 10 brokerages yesterday and nine banks today to see if there was collusion on certificate of deposit rates, the agency said in an e-mailed statement. The FTC will closely review the inspection results, it said without identifying firms under investigation.
Commission officials, who visited some local brokerages yesterday amid a probe into the money-market rates, met today with executives at the banking units of Hana Financial Group Inc. (086790), KB Financial Group Inc. (105560), Shinhan Financial Group Co. (055550) and Woori Finance Holdings Co. at their headquarters, four bank officials briefed on the matter said.
South Korea’s 91-day certificate of deposit rate is a benchmark for banks’ variable rate for lending and borrowing as well as for interest swaps or floating yields for bonds. Quotes are collected twice a day by the Korea Financial Investment Association, or KOFIA, from 10 brokerages. The highest and lowest two are eliminated and the remaining are averaged.
Some brokerages are under investigation by the commission on whether they collaborated to keep the certificate of deposit rates artificially high, press officials at three brokerages with knowledge of the matter said yesterday. The 91-day certificate of deposit rate had remained unchanged at 3.54 percent from April 9 to July 12, when it fell by 27 basis points to 3.27 percent after the central bank unexpectedly reduced borrowing costs, according to data compiled by KOFIA.
In Japan, along with a check of yen-denominated Tibor submissions, as many as 15 reference banks may be reviewed for how they submit their euro-yen Tibor rates, said Hisanao Aoki, a spokesman for the banking group. The Asahi newspaper reported the association’s plan earlier today.
The reference banks, including the lending units of Mitsubishi UFJ Financial Group Inc. (8306), JPMorgan Chase & Co. and Deutsche Bank AG, are responsible for submitting interbank offered rates to the Japanese Bankers Association, which compiles them and sets the benchmark, according to the lobbying group’s website.
The ruling Democratic Party of Japan plans to call on the banking lobby tomorrow to explain how Tibor is set, lawmaker Tsutomu Okubo said yesterday. The former Morgan Stanley banker is heading a panel examining financial firms.
Former association chairman Katsunori Nagayasu said in February that the group may take measures to improve the way it compiles the nation’s interbank lending rate following the Financial Services Agency’s penalties for Citigroup and UBS. Any changes would be based on guidance from investigators, he said at the time.
Yasuhiro Sato, who became president of the association in April, is scheduled to meet with reporters tomorrow afternoon in Tokyo for a monthly press conference. Sato is also president of Mizuho Financial Group Inc. (8411), Japan’s third-largest lender by market value.
In the U.S., attorneys general in at least five states have begun probes related to alleged manipulation of the Libor rate, adding to probes by federal authorities. The investigations are being conducted by New York, Connecticut, Massachusetts, Florida and Maryland.
Barclays traders who allegedly manipulated rates from 2005 to 2007 may be charged by U.S. prosecutors before Sept. 3, according to a person familiar with the U.S. Justice Department’s investigation. The scandal led to the resignation of Robert Diamond as the bank’s chief executive officer.
Royal Bank of Scotland Group Plc, UBS and Lloyds Banking Group Plc are among lenders facing inquiries over alleged rigging of Libor, the benchmark interest rate for financial products valued at $360 trillion.
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