Bloomberg News

Libor Collusion Can’t Be Excused by Bank Crisis: Almunia

July 16, 2012

Banks that manipulated Libor and other interbank lending rates shouldn’t use the financial crisis as an excuse for collusion, the European Union’s antitrust chief said.

“A crisis is not at all an excuse” for failing to comply with antitrust legislation, EU Competition Commissioner Joaquin Almunia said yesterday in an interview in Brussels.

Barclays Plc (BARC) admitted last month that it submitted false rates to help lower the London interbank offered rate, or Libor, during the 2007 financial crisis. Jerry Del Missier, the bank’s former chief operating officer, told U.K. lawmakers yesterday that he passed along instructions from then Chief Executive Officer Robert Diamond about the rate because he believed the Bank of England was concerned about its lending costs in 2008.

Diamond, who resigned as London-based Barclays’s chief executive officer after the bank was fined 290 million pounds ($453 million), told British lawmakers this month that other banks lowballed Libor submissions. Barclays also admitted to trying to alter the rates from 2005 to 2009 at the request of derivatives traders.

EU regulators are investigating banks over manipulation of the London, euro and Tokyo interbank lending rates for several currencies. The probes focus on suspected cartel arrangements for derivatives linked to the benchmark rates, including possible collusion over the setting of the rates.

Almunia said he’s strengthened the allocation of resources to EU investigators examining collusion over interest-rate derivatives to deal with the cases as quickly as possible.

Probes Take Time

“Cartel investigations take time,” Almunia said. “We need to be rigorous, even if I understand the need to reach decisions as soon as possible. We should analyze carefully all the documentation, all the information we collected, so I cannot anticipate a deadline” for an antitrust complaint.

Confidence in Libor, a benchmark for financial products valued at $500 trillion worldwide, has been dented by Barclays’s admission that it submitted false rates.

“If a benchmark that is used every day in thousands of millions of deals in the derivatives sector, but also to establish the interest rate on the mortgages for individual families, is manipulated, some people will win if they know in which sense the benchmark will be modified,” Almunia said.

The manipulation of such a benchmark creates mistrust in banks and banking groups, Almunia said.

“Knowing what has happened, everybody will agree that we need to change the way these benchmarks are established,” Almunia said. “We cannot rely on self-regulation.”

Daily Survey

Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. The rates are based on data from banks reflecting how much it would cost them to borrow from one another for various periods of time in currencies including dollars, euros and yen.

Almunia has focused increased antitrust scrutiny on financial markets, opening separate investigations last year into Goldman Sachs Group Inc., JPMorgan Chase & Co. and other investment banks over agreements in the market for credit default swaps.

While recent legislation to open up competition for settling securities trades has solved some of the problems the EU identified last year, Almunia said it wouldn’t halt his probe into possible collusion in the swaps market.

The EU is investigating whether the banks shared most of the pricing, indexes and other essential daily data for credit default swaps trading only to Markit, the owner of the most actively traded credit swap indexes and pricing services in the market.

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus