RBS facing investigation over ‘manipulation’ of lending rates

By MARTIN DE SA’PINTO AND ERIKKA ASKELAND
Published on Saturday 4 February 2012 00:00

ROYAL Bank of Scotland is among a dozen US, European and Japanese banks being investigated by Swiss regulators over suspicions they conspired to manipulate interbank lending rates used to set interest rates on hundreds of trillions of dollars of securities.

The Swiss Competition Commission (COMCO) said yesterday that it had received information of possible collusion between derivatives traders concerning London Interbank Offered Rate (Libor) and Tokyo Interbank Offered Rate (Tibor).

“Derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour,” COMCO said in a statement.

Libor is derived from the rates that banks say they charge each other and is used worldwide as a benchmark for setting rates on about $350 trillion (£221.8tn) of derivatives and other financial products.

Small changes in the rate can have large impacts on the amounts of interest that can be charged.

A spokesman for the British Bankers’ Association, which manages Libor, insisted that the benchmark rate calculation remained “straightforward and unambiguous”.

He said: “We observe rigorous standards in our scrutiny and governance of the Libor mechanism, and work with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks.

“It is fully transparent – all of the data inputted by the contributor banks is publicly available, as is our methodology.”

COMCO said those under investigation are Bank of Tokyo-Mitsubishi UFJ, Citigroup, Credit Suisse, Deutsche Bank, HSBC Holdings, JP Morgan Chase, Mizuho Financial Group., Rabobank, Societe Generale, Sumitomo Mitsui Banking Corporation, UBS and RBS.

US, European Union and British regulators are also investigating whether banks understated interbank rates to reduce borrowing costs and downplay investor panic during the banking crisis.

“We are in contact with the US department of justice and the EU Competition Commission,” said Olivier Schaller, a COMCO official. “At present we are focusing on the problems that appeared in the Swiss market. We are at the beginning of our investigation” he added.

In July last year UBS said it had been granted leniency or immunity by some authorities in return for co-operating in their Libor manipulation investigations.

Libor rates spiked during the crisis but were widely criticised at the time for not having risen enough to reflect real interbank prices.

Banking sources have said there was some political pressure to keep a lid on Libor during the credit crunch and commercial banks were lobbied to keep borrowing costs down.

“There was the fear that if Libor went up, a large number of Arms [adjustable rate mortgages)] would reset at meaningfully higher rates and default rates would explode,” said a source from one of the Libor reporting banks last year.

RBS declined to comment on the Swiss investigation.

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derekafarmer

Saturday, February 4, 2012 at 12:50 PM

If it is the case that LIBOR rates were manipulated, it is the equivalent of insider trading, and a very serious matter for the BBA. The BBA, however, has ceased to command any respect as an independent arbitrator in the banking industry. Instead,MIT has become an apologist for its members. Witness it's position and commentary on recent scandals such as the PPI mis-selling and the constant ludicrous defence of members' interests paraded in the media by BBA spokesperson Angela Knight. This is yet another stable that needs a good cleaning out to restore probity and confidence. Meanwhile LIBOR management should be transferred to the Bank of England.

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