European Union antitrust regulators are investigating collusion among banks and brokers to manipulate benchmark lending rates denominated in Swiss francs, building on earlier probes linked to the yen and the euro, EU Competition Commissioner Joaquin Almunia said today.
“We are investigating the interest rates used as a reference for several currencies, including the euro, yen and Swiss franc,” Almunia said in the text of a speech he gave in Paris. “We suspect the existence of cartels between certain actors in the derivative markets -- banks but also brokers.”
Deutsche Bank AG (DBK), Barclays Plc, HSBC Holdings Plc (HSBA) and Royal Bank of Scotland Group Plc (RBS) have all said they were quizzed by the EU over benchmark interest rates. Almunia has said previously that he’s investigating possible rate-fixing for Libor, Euribor and the Tokyo index Tibor that may have affected derivatives. He said today that the Euribor probe is linked to the euro and declined to comment further on currencies linked to the other rates.
The Libor probes are an “absolute priority” for the EU, Almunia said today. Any fines from EU regulators will cover all the companies involved at once, he said. That differs from other financial regulators that have settled with banks separately. Barclays (BARC), UBS AG and RBS have been fined more than $2.5 billion by U.S. and U.K. financial regulators for manipulating the London interbank offered rate and more than a dozen more firms are being investigated.
UBS has received conditional immunity from U.S. and Swiss antitrust regulators for cooperating with investigations. The bank said it sought immunity for probes on yen Libor, Euroyen Tibor and Swiss franc Libor.
The EU can levy fines of as much of 10 percent of a company’s yearly global revenue for each cartel in which they participate. Interest-rate derivatives markets were worth $20 trillion in 2011, Almunia said in July.
“The Libor manipulation scandal as it’s come out has highlighted some of the most irresponsible behavior of the financial industry to date,” Almunia said in the speech today. “It’s important to note that antitrust violations were officially recognized in the recent deal struck between RBS and the U.S. authorities.”
U.S. Commodity Futures Trading Commission Chairman Gary Gensler yesterday questioned the long-term viability of benchmark rates such as Libor, saying they need to be based on real transactions instead of estimates. Regulators from around the world are discussing the future of the benchmarks. The CFTC published a code of conduct in June for how banks should make daily submissions.
Following the collapse of Lehman Brothers Holdings Inc. in September 2008, banks stopped lending to one another for periods of more than a day or two. In the absence of any interbank transactions, banks increasingly set Libor to suit their own derivatives positions, according to regulatory filings.
Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the British Bankers’ Association, a banking industry lobby group, that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.
Oversight of Libor will eventually be taken over by the U.K.’s financial regulator, and dozens of the currencies and maturities that make up the benchmark axed, under proposals from Martin Wheatley, the agency’s Managing Director, designed to revive confidence in the rate.
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