World’s Major Banks Accused of Interest Rate Rigging Scandal

Some of the world’s major banks have been accused of participating in an interest rate rigging scandal. The banks have been hit with lawsuits alleging that they colluded to influence both the Libor and Euribor interest rates – the rates at which banks lend to each other.

A lawsuit filed by Charles Schwab against several banks including Barclays, HSBC, Lloyds and RBS, alleges extensive fraud spanning at least three continents and involving trades worth tens of billions of pounds.

Experts hired by Schwab to examine the banks’ trades looked at submissions each of the banks made to the Libor Panel of the British Banking Association – which oversees the interbank lending rate. According to Schwab’s lawsuit, the banks conspired to keep lending interest rates low by underreporting Libor interest rates to the Panel. 

Canada’s Competition Bureau filed an affidavit against a number of banks, including HSBC Bank Canada and Royal Bank of Scotland demanding staff hand over emails and other documents. According to one bank turned whistleblower, the banks “communicated with each other… to form agreements…” which “was done for the purpose of benefiting trading positions”.

Barclays has already been hit with a £290m fine and faces additional lawsuits. In its defense, Barclays says it was only trying to protect its reputation by underreporting Libor interest rates as a higher Libor submission would have indicated that the bank was in financial trouble.

Evidence suggests that regulatory authorities may have had notice of the banks’ fraudulent activity well in advance of taking any action. Allegedly, as the financial crisis raged, several Barclays’ employees informed Britain’s City watchdog, Financial Services Authority, British Bankers Association and thd Bank of England that all the banks that comprise the Libor panel “were contributing rates that were too low.”

For more information, please see The Guardian – Banking scandal: how document trail reveals global scam.

 

One comment

  1. This latest banking scandal highlights the stranglehold modern banks have on the world’s economy and the difficultly of the task of regulating banks. Obviously banks are involved in transactions with many people, each at different levels of income, and have the responsibility to deal with them in a prudent manner. Part of the issue seems to be that banks have the greatest amount of information regarding the economic situations of different individuals and entities each in different industries and can manipulate markets and interest rates, as they have here. Regulating the banks requires knowledge of the same information, or at least a large portion of the same information that is available to the banks, or getting lucky and being made aware by someone within the banking industry, as was the case in this instance. What I wonder is, whether the commissions charged with regulating banks actually care to pursue their duties to the fullest extent, or is the strong position of these large banks in the world’s economy too great for regulatory commissions to jeopardize?

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