Bank-Rate Rigging Faces Tougher EU Rules, Antitrust Scrutiny

EU financial services chief Michel Barnier
EU financial services chief Michel Barnier told reporters in Brussels, “The international investigations under way into the manipulation of Libor have revealed yet another example of scandalous behavior by the banks.” Photographer: Jock Fistick/Bloomberg

The European Union pledged tougher supervision of interbank lending rates and said it may expand antitrust probes as part of a response to the global scandal triggered by the manipulation of Libor.

Michel Barnier, the EU’s financial services chief, said he’s aiming to present proposals by year end for overhauling governance of Libor, Euribor and other market indices. EU Competition Commissioner Joaquin Almunia also said that he may expand probes into bank-rate rigging.

“The international investigations under way into the manipulation of Libor have revealed yet another example of scandalous behavior by the banks,” Barnier told reporters in Brussels. The commission is also examining whether interbank lending rates should be set using real transaction data rather than estimates, he said.

Confidence in Libor, the benchmark interest rate for more than $500 trillion of securities, has been shaken by Barclays Plc’s admission that it submitted false rates. Robert Diamond, who resigned as London-based Barclays’s chief executive officer after the bank was fined 290 million pounds ($450 million), told British lawmakers this month that other banks also lowballed Libor submissions.

The Barclays fine has provoked renewed calls for tougher oversight of the financial system and pushed regulatory probes of interbank lending rates to the top of the political agenda.

Daily Poll

Libor, the London interbank offered rate, is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies. Similarly, Euribor, the euro equivalent, is overseen by the European Banking Federation in Brussels.

The EU last year opened formal investigations into possible rigging of these two rates and Tibor, their Tokyo equivalent.

These probes are continuing, Joaquin Almunia, the EU’s antitrust chief, said in Brussels today.

“Maybe we will announce in the future some more activities in this field,” Almunia said.

The commission today proposed a draft law that would make rigging of market benchmarks punishable with jail terms and other criminal sanctions. Any attempted manipulation could be punished with fines and other administrative penalties.

These plans need approval by lawmakers in the European Parliament and national governments before they can take effect.

“These texts are urgent and we want to get them through by the end of the year,” Barnier said.

Bank of England

Viviane Reding, the EU’s justice policy commissioner, told reporters at the same briefing that the Bank England had failed to act on warnings that Libor may have been manipulated.

“I was personally not very much convinced by the action of the Bank of England,” Reding said.

The case showed the need for centralized banking supervision in the EU, she said.

A single supervisor would end the “cosy relationship that exists today between some national supervisors and banks in their home country,” she said.

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