Libor scandal sparks tougher EU attitude
By Sophie Mosca | Monday 09 July 2012
The scandal of the manipulation of the London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor) has grown to an unprecedented scale and is leading the EU to consider toughening its position by providing for criminal penalties in this case.
This ‘Liborgate’ concerns fraud by certain banks in setting interbank rates in order to hide the higher price at which they acquired liquidities so as to give a false impression of their financial soundness. Several investigations were launched by different surveillance authorities, including the European Commission, to track down these agreements on manipulation of these rates between 2005 and 2009.
In the eye of the storm is the British bank Barclays, which, on 27 June, was slapped with a fine of €362 million in the United Kingdom and the United States (see
Europolitics4456). In the last few days it has forced three of its top executives to step down (its Chairman, Marcus Agius, Chief Executive Bob Diamond and Chief Operating Officer Jerry del Missier). To date, it is the only institution to have acknowledged such manipulation but the scandal has dealt a serious blow to the image of the City.
On 6 July, the British Serious Fraud Office (SFO) declared its competence to open a criminal investigation in the case and the British Parliament has also taken up the matter: the Treasury Committee held a hearing of Bank of England Deputy Governor Paul Tucker, on 9 July.
On the same day, Financial Services Commissioner Michel Barnier said on French radio that the result of the Commission’s investigation would be known “in a few weeks”. He added that he planned to put more teeth into the proposed revision of the market abuse directive to establish criminal sanctions for rate manipulation operations, which he likened to “treachery” with potentially systemic consequences. The commissioner also ordered a study on these rates and on the advisability of placing them under regulators’ control. “We have to learn from the Libor scandal,” explained his spokesman.
Other regulators have announced that they have opened investigations in connection with these rate manipulations, including the German market regulator BaFin and the Swiss federal financial market authority FINMA. BaFin has not confirmed whether it suspects Deutsche Bank, as some sources have reported.
Several other large banks are also in the hot seat, including Royal Bank of Scotland, Citigroup, HSBC and UBS.
The Libor is set by the British Banking Association (BBA) based on the average rates at which 16 London reference banks could borrow funds for different periods of maturity. It serves as a reference for the US$350,000 billion in futures, such as swaps and mortgages, traded daily.