Libor scandal

Scale of the scandal about the issue.[12]

The British Bankers Association said on 25 September
This dwarfs by orders of magnitude any nancial scam in 2012 that it would transfer oversight of Libor to UK reg-
the history of markets.[1][2] ulators, as predicted by bank analysts,[13] proposed by
Financial Services Authority managing director Martin
Wheatley's independent review recommendations.[14]
Wheatleys review recommended that banks submitting
rates to Libor must base them on actual inter-bank de-
Andrew Lo, MIT Professor of Finance posit market transactions and keep records of those trans-
actions, that individual banks LIBOR submissions be
The Libor scandal was a series of fraudulent actions con- published after three months, and recommended crim-
nected to the Libor (London Interbank Oered Rate) and inal sanctions specically for manipulation of bench-
[15]
also the resulting investigation and reaction. The Libor is mark interest rates. Financial institution customers
an average interest rate calculated through submissions may experience higher and more volatile borrowing and
of interest rates by major banks in London. The scandal hedging costs after implementation of the recommended
[16]
arose when it was discovered that banks were falsely in- reforms. The UK government agreed to accept all of
ating or deating their rates so as to prot from trades, the Wheatley Reviews recommendations and press for
[17]
or to give the impression that they were more credit- legislation implementing them.
worthy than they were.[3] Libor underpins approximately Signicant reforms, in line with the Wheatley Review,
$350 trillion in derivatives. It is currently administered came into eect in 2013 and a new administrator will
by NYSE Euronext, which took over running the Libor take over in early 2014.[18][19] The UK controls Libor
in January 2014.[4] through laws made in the UK Parliament.[20][21] In partic-
The banks are supposed to submit the actual interest rates ular, the Financial Services Act 2012 brings Libor under
they are paying, or would expect to pay, for borrowing UK regulatory oversight and creates a criminal oence
from other banks. The Libor is supposed to be the to- for knowingly or deliberately making false or misleading
[18][22]
tal assessment of the health of the nancial system be- statements relating to benchmark-setting.
cause if the banks being polled feel condent about the As of August 2015, UBS trader Thomas Alexander
state of things, they report a low number and if the mem- William Hayes was the only person convicted in connec-
ber banks feel a low degree of condence in the nan- tion with the Libor scandal.
cial system, they report a higher interest rate number.
In June 2012, multiple criminal settlements by Barclays
Bank revealed signicant fraud and collusion by member
banks connected to the rate submissions, leading to the 1 Early reports of Libor manipula-
scandal.[5][6][7]
tion
Because Libor is used in US derivatives markets, an at-
tempt to manipulate Libor is an attempt to manipulate
US derivatives markets, and thus a violation of American 1.1 WSJ Libor study
law. Since mortgages, student loans, nancial derivatives,
and other nancial products often rely on Libor as a ref- Libor manipulation to lower rate
erence rate, the manipulation of submissions used to cal-
culate those rates can have signicant negative eects on
Hi Guys, We got a big position in 3m libor for the next 3
consumers and nancial markets worldwide. days. Can we please keep the lib or xing at 5.39 for the
On 27 July 2012, the Financial Times published an ar- next few days. It would really help. We do not want it to
ticle by a former trader which stated that Libor manip- x any higher than that. Tks a lot.
ulation had been common since at least 1991.[8] Further
reports on this have since come from the BBC[9][10] and
Reuters.[11] On 28 November 2012, the Finance Com-
mittee of the Bundestag held a hearing to learn more
Barclays Bank trader in New York to submitter,

1
2 1 EARLY REPORTS OF LIBOR MANIPULATION

13 September 2006[23] sis revealed the peculiar behavior of Libor vis--vis other
market rates. In the same line and going deeper into the
On 16 April 2008, The Wall Street Journal released a con- analysis, Bariviera and coauthors[33] published an exten-
troversial article, and later study, suggesting that some sive analysis of Libor interest rates for seven dierent ma-
banks might have understated borrowing costs they re- turities and ve currencies, during the period 2001-2015.
ported for the Libor during the 2008 credit crunch that The analysis is performed by means of two quantiers de-
may have misled others about the nancial position of rived from information theory: the permutation Shannon
these banks.[24][25] In response, the BBA claimed that the entropy and the permutation Fisher information measure.
They found an anomalous behavior in all currencies, ex-
Libor continued to be reliable even in times of nan-
cial crisis. Other authorities contradicted The Wall Street cept for the euro during the years 2006-2012. In par-
ticular they found that 1-month, 2-month, and 3-month
Journal article saying there was no evidence of manip-
ulation. In its March 2008 Quarterly Review, the Bank maturities were governed by a dierent process from the
other maturities. Although the proposed method is not
for International Settlements stated that available data
do not support the hypothesis that contributor banks ma- aimed to nd data manipulation, but rather to discrimi-
nate dierent stochastic structures present in time series,
nipulated their quotes to prot from positions based on
xings.[26] Further, in October 2008, the International the result are very useful. Additionally, the methodology
Monetary Fund published its regular Global Financial of their paper is suitable for monitoring the market, as it
Stability Review which also found that Although the in- can provide an early warning of an abnormal behavior of
tegrity of the U.S. dollar Libor-xing process has been key economic variables.
questioned by some market participants and the nancial
press, it appears that U.S. dollar Libor remains an accu-
1.2 Central banks aware of Libor aws
rate measure of a typical creditworthy banks marginal
cost of unsecured U.S. dollar term funding.[27]
The Governor of the Bank of England, Mervyn King, by
A study by economists, Snider and Youle, in April 2010, the end of 2008, described the Libor to the UK Parlia-
however, corroborated the results of the earlier Wall ment saying It is in many ways the rate at which banks
Street Journal study that the Libor submissions by some do not lend to each other, ...it is not a rate at which anyone
member banks were being understated.[28] Unlike the is actually borrowing.[34][35]
earlier study, Snider and Youle suggested that the rea-
The New York Federal Reserve chose to take no action
son for understatement by member banks was not that
against them at that time.[36][37] Minutes by the Bank of
the banks were trying to appear strong, especially dur-
England similarly indicated that the bank and its deputy
ing the nancial crisis period of 2007 to 2008, but rather
governor Paul Tucker were also aware as early as Novem-
that the banks sought to make substantial prots on their
ber 2007 of industry concerns that the Libor rate was be-
large Libor interest-linked portfolios.[29] For example,
ing under-reported.[38][39] In one 2008 document, a Bar-
in the rst quarter of 2009, Citigroup had interest rate
clays employee told a New York Fed analyst, We know
swaps of notional value of $14.2 trillion, Bank of Amer-
that we're not posting an honest Libor, and yet we are
ica had interest rate swaps of notional value of $49.7 tril-
doing it, because if we didn't do it, it draws unwanted
lion and JPMorgan Chase had interest rate swaps of no-
attention on ourselves.[37]
tional value of $49.3 trillion.[30] Given the large notional
values, a small unhedged exposure to the Libor could The documents show that in early 2008, a memo written
generate large incentives to alter the overall Libor. In by then New York Fed President Tim Geithner to Bank
the rst quarter of 2009, Citigroup for example reported of England chief Mervyn King looked into ways to x
[40][41]
that it would make that quarter $936 million in net inter- Libor. While the released memos suggest that the
est revenue if interest rates would fall by .25 percentage New York Fed helped to identify problems related to Li-
points a quarter, and $1,935 million if they were to fall bor and press the relevant authorities in the UK to reform,
by 1 percentage point instantaneously.[31] More recently, there is no documentation that shows any evidence that
econophysicist A.F. Bariviera published two papers ana- Geithners recommendations were acted upon or that the
lyzing Libor time series. The importance of these papers Fed tried to make sure that they were. In October 2008,
rely on the analysis of raw Libor data, without assuming several months after Geithners memo to King, a Barclays
an ex ante model. The rst one has the suggestive title employee told a New York Fed representative that Libor
[37]
The (in)visible hand in the Libor market: an information rates were still absolute rubbish.
[32]
theory approach and was published in August 2015.
The authors analize Libor rates in British pounds between
1999 and 2014, using an advanced pioneering statistical 1.3 Regulatory investigations
tool called the Complexity Entropy Causality Plane. They
detected an anomalous behavior in the Libor, especially The Wall Street Journal reported in March 2011 that reg-
around the time of the 2008 nancial crisis, that could be ulators were focusing on Bank of America Corp., Cit-
consistent with data manipulation. The symbolic analy- igroup Inc. and UBS AG in their probe of Libor rate
manipulation.[42] A year later, it was reported in Febru-
2.1 United States investigations 3

ary 2012 that the US Department of Justice was conduct- in setting the Libor, calling into question its future as a
ing a criminal investigation into Libor abuse.[43] Among benchmark standard, but without any viable alternative
the abuses being investigated were the possibility that to replace it.[54]
traders were in direct communication with bankers before
the rates were set, thus allowing them an unprecedented
amount of insider knowledge into global instruments.[44] 2.1 United States investigations
In court documents, a trader from the Royal Bank of
Scotland claimed that it was common practice among se- The United States Congress began investigating on 10
nior employees at his bank to make requests to the banks July. Senate Banking Committee Chairman Tim John-
rate setters as to the appropriate Libor rate, and that the son (D., South Dakota) said he would question Treasury
bank also made on occasions rate requests for some hedge Secretary Timothy Geithner and Federal Reserve chair-
funds.[45] One traders messages from Barclays Bank in- man Ben Bernanke about the scandal during scheduled
dicated that for each basis point (0.01%) that Libor was hearings. Rep. Randy Neugebauer (R., Texas) of the
moved, those involved could net, about a couple of mil- House Financial Services Committee, wrote New York
lion dollars.[44] Federal Reserve (New York Fed) President William Dud-
The Canadian Competition Bureau was reported on 15 ley. He was seeking records of communications between
July 2012 to also be carrying out an investigation into the New York Fed and Barclays between August 2007
price xing by ve banks of the yen denominated Libor and November 2009 related to Libor-like rates.[55]
rates. Court documents led indicated that the Compe- On 4 October 2012, Republican US Senators Chuck
tition Bureau had been pursuing the matter since at least Grassley (Iowa) and Mark Kirk (Illinois) announced that
January 2011. The documents oered a detailed view of they were investigating Treasury Secretary Tim Geithner
how and when the international banks allegedly colluded for complicity with the rate manipulation scandal. They
to x the Libor rates. The information was based on accused Geithner of knowledge of the rate-xing, and in-
a whistleblower who traded immunity from prosecution action which contributed to litigation that threatens to
in exchange for turning on his fellow conspirators. In clog our courts with multi-billion dollar class action law-
the court documents, a federal prosecutor for the bureau suits alleging that the manipulated rates harmed state,
stated, IRD (interest-rate derivatives) traders at the par- municipal and local governments. The senators said that
ticipant banks communicated with each other their de- an American-based interest rate index is a better alterna-
sire to see a higher or lower yen LIBOR to aid their trad- tive which they would take steps towards creating.[56]
ing positions. The alleged participants were the Cana-
dian branches of the Royal Bank of Scotland, HSBC, Federal Housing Finance Agency Inspector General and
Deutsche Bank, JP Morgan Bank, and Citibank, as well auditor Steve A. Linick said in a 3 November memo that
as ICAP (Intercapital), an interdealer broker.[46] Fannie Mae and Freddie Mac may have lost more than $3
billion because of the manipulation.[57]

2 Breadth of scandal becomes ap- 2.2 Parliamentary investigation

parent
By 4 July 2012, the breadth of the scandal was evident
and became the topic of analysis on news and nancial
programs that attempted to explain the importance of the
scandal.[47] Two days later, it was announced that the UK
Serious Fraud Oce had also opened a criminal inves-
tigation into manipulation of interest rates. The investi-
gation was not limited to Barclays.[48][49] It has been re-
ported since then that regulators in at least ten countries
on three dierent continents are investigating the rigging
of the Libor and other interest rates.[50][51] Around 20
major banks have been named in investigations and court
cases.[52]
Early estimates are that the rate manipulation scandal cost
US states, counties, and local governments at least $6 bil-
lion in fraudulent interest payments, above $4 billion that
state and local governments have already had to spend to
unwind their positions exposed to rate manipulation.[53]
An increasingly smaller set of banks are participating
Appearing before Parliament on 16 July, Jerry del
Missier, a former senior Barclays executive, said that he
had received instructions from Robert Diamond to lower
rates after Diamonds discussions with bank regulators.
He said that he had received information of a conversa-
tion between Diamond and Paul Tucker, deputy governor
of the Bank of England, in which they had discussed the
banks nancial position at the height of the 2008 nancial
crisis. It was his understanding that senior British govern-
ment ocials had instructed the bank to alter the rates.
Del Missiers testimony followed statements from Dia-
mond in which he denied that he had told his deputies to
report false Libor rates. Speaking before Parliament the
previous week, Tucker stated that he had shared concerns
regarding Barclays Libor rates because the markets might
view Barclays to be at risk if its Libor submissions contin-
ued to be higher than those of other international banks.
In the midst of the Lehman Brothers collapse, there was
concern the bank might need to be bailed out if the nan-
cial markets perceived it was a credit risk. Tucker told the
4 3 LIBOR BANKS ARE SUED IN CIVIL COURT
committee, I wanted to make sure that Barclays day-to-
day funding issues didn't push it over the cli.[58]
3 Libor banks are sued in civil
court
3.1 Libor xing operates as a cartel
Libor xing a banking cartel
Its just amazing how Libor xing can make you that
much money or lose if opposite. Its a cartel now in Lon-
don.
RBS trader in Singapore to Deutsche Bank trader,
19 August 2007[59]
In court documents led in Singapore, Royal Bank of rose on average more than two basis points above the av-
Scotland (RBS) trader Tan Chi Min told colleagues that erage on the rst day of the month, and between 2007 and
his bank could move global interest rates and that the Li- 2009, the Libor rate rose on average more than seven and
bor xing process in London had become a cartel. Tan one-half basis
in his court adavit stated that the Royal Bank of Scot-
land knew of the Libor rates manipulation and that it
supported such actions. In instant messages, traders at
RBS extensively discussed manipulating Libor rates. In
a released transcript of a 21 August 2007 chat, Jezri Mo-
hideen, who was the head of yen products in Singapore,
asked to have the Libor xed in a conversation with other
traders:[59]
Mohideen: Whats the call on the Libor?
Trader 2: Where would you like it, Libor that
is?
Trader 3: Mixed feelings, but mostly I'd like
it all lower so the world starts to make a little
sense.
Trader 4: The whole HF [hedge fund] world
will be kissing you instead of calling me if Li-
bor move lower.
Trader 2: OK, I will move the curve down 1
basis point, maybe more if I can.
In another conversation on 27 March 2008, Tan asked
that RBS raise its Libor submission and noted that an
earlier lower gure that the bank had submitted had cost
his team 200,000. In other released instant chats, Tan
made it clear that the Libor xing process had become
a highly lucrative money making cartel. Tan in a con-
versation with traders at other banks, including Deutsche
Banks Mark Wong said on 19 August 2007:[59]
Tan: Its just amazing how Libor xing can
make you that much money or lose if opposite.
Its a cartel now in London.
Wong: Must be damn dicult to trade man,
especially [if] you [are] not in the loop.
3.2 Mortgage rates manipulated on reset
date
Homeowners in the US led a class action lawsuit in
October 2012 against twelve of the largest banks which
alleged that Libor manipulation made mortgage repay-
ments more expensive than they should have been.
Statistical analysis indicated that the Libor rose consis-
tently on the rst day of each month between 2000 and
2009 on the day that most adjustable-rate mortgages had
as a change date on which new repayment rates would
reset. An email referenced in the lawsuit from the Bar-
clays settlement, showed a trader asking for a higher Li-
bor rate because We're getting killed on our three-month
resets.[60] During the analysed period, the Libor rate
[61]
points above the average on the rst day of
the month.
The ve lead plaintis included a pensioner whose
home was repossessed after her subprime mortgage was
securitised into Libor-based collateralised debt obliga-
tions, sold by banks to investors, and foreclosed. The
plaintis could number 100,000, each of whom has lost
thousands of dollars.[62] The complaint estimates that the
banks earned hundreds of millions, if not billions of dol-
lars, in wrongful prots as a result of articially inating
Libor rates on the rst day of each month during the com-
plaint period.[61]
3.3 Municipalities lost billions due to rig-
ging
The city of Baltimore and others in the US led a class
action lawsuit in April 2012 against Libor setting banks
which alleged that the manipulation of Libor caused pay-
ments on their interest rate swaps to be smaller than they
should have been.[63] Before the nancial crisis, states
and localities bought $500 billion in interest rate swaps
to hedge their municipal bond sales. It is estimated that
the manipulation of Libor cost municipalities at least $6
billion. These losses were in addition to $4 billion that
localities had already paid to unwind backring interest
rate swaps.[64]
Municipalities began using interest rate swaps to hedge
their municipal bond sales in the late 1990s. At this time,
investment bankers began oering local governments a
way to save money on the sale of municipal bonds. The
4.2 Europe 5

banks suggested instead of selling xed interest rate bonds Glass-Steagall Act of 1933 which led to half a century,
that local governments sell variable interest rate bonds free of nancial crises.[69]
which typically have interest rates as much as one per-
centage point lower than xed interest rate bonds. For a
municipal government this could mean saving as much as 4.2 Europe
$1 million a year on the sale of a $100 million bond.[65]
Mainland European scholars discussed the necessity of
To hedge costs on the sale of variable interest rate bonds, far-reaching banking reforms in light of the current cri-
which can rise and fall with the market, local govern- sis of condence, recommending the adoption of bind-
ments, such as Baltimore, purchased interest rate swaps ing regulations that would go further than the Dodd
which exchange a variable interest rate for a xed inter- Frank Act: notably in France where SFAF and World
est rate.[66] In a swap deal, when the interest rate rises, Pensions Council (WPC) banking experts have argued
the swap seller pays the local government the increased that, beyond national legislations, such rules should be
cost on the bond, while when the interest rate falls, the adopted and implemented within the broader context of
swap seller saves and pays the local government the de- separation of powers in European Union law, to put an
creased cost on the bond. The interest rate swap mech- end to anti-competitive practices akin to exclusive deal-
anism generally works well, however, between 2007 and ing and limit conicts of interest.[70][71] This perspective
2010 the payments to local governments on their swaps gained ground after the unraveling of the Libor scandal,
articially decreased but the cost on their bonds remained with mainstream opinion leaders such as the Financial
at actual market rates. This was because most interest Times' editorialists calling for the adoption of an EU-
rate swaps are linked to the Libor interest rate, while mu- wide GlassSteagall II.[72]
nicipal bond rates are linked to the SIFMA Municipal
Bond Index interest rate. During the nancial crisis the Naomi Wolf of The Guardian suggested in an editorial
two benchmark rates decoupled. Municipalities contin- that the
ued to pay on their bonds at the actual market Sifma rate
but were paid on their interest rate swaps at the articially notion that the entire global nancial sys-
lower Libor rate. [65] tem is riddled with systemic fraud and that
key players in the gatekeeper roles, both in -
nance and in government, including regulatory
bodies, know it and choose to quietly sustain
4 Reactions and impact on banking this reality is one that would have only re-
cently seemed like the frenzied hypothesis of
regulation tinhat-wearers.[73]

The cost to colluding and suspect banks from litigation, Following Tim Geithner's promotion to Treasury Secre-
penalties, and loss of condence may drive down nance tary, Wolf commented,
industry prots for years. The cost of litigation from the
scandal may exceed that of asbestos lawsuits.[67] It is very hard, looking at the elaborate ed-
ices of fraud that are emerging across the -
nancial system, to ignore the possibility that
4.1 United States this kind of silence the willingness to not
rock the boat is simply rewarded by pro-
US experts such as former Assistant Secretary of the motion to ever higher positions, ever greater
Treasury Paul Craig Roberts have argued that the Libor authority. If you learn that rate-rigging and
Scandal completes the picture of public and private - regulatory failures are systemic, but stay quiet,
nancial institutions manipulating interest rates to prop up well, perhaps you have shown that you are gen-
the prices of bonds and other xed income instruments, uinely reliable and deserve membership of the
and that the motives of the Fed, Bank of England, US club.[73]
and UK banks are aligned, their policies mutually rein-
forcing and benecial. The Libor xing is another indi-
4.3 Recommendations
cation of this collusion.[68] In that perspective they ad-
vocate stricter bank regulation, and a profound reform of The British Bankers Association said on 25 September
the Federal Reserve System. 2012 that it would transfer oversight of Libor to UK regu-
Former Citigroup chairman and CEO Sandy Weill, con- lators, as proposed by Financial Services Authority man-
sidered one of the driving forces behind the considerable aging director Martin Wheatley and CEO-designate of
nancial deregulation and mega-mergers of the 1990s, the new Financial Conduct Authority.[14] On 28 Septem-
surprised nancial analysts in Europe and North Amer- ber, Wheatleys independent review was published, rec-
ica by calling for splitting up the commercial banks from ommending that an independent organisation with gov-
the investment banks. In eect, he says, Bring back the ernment and regulator representation, called the Tender
6 5 FINES FOR MANIPULATION

Committee, manage the process of setting Libor under audited by the regulators if necessary.[18][78][79]
a new external oversight process for transparency and In early 2014, NYSE Euronext will take over the ad-
accountability. Banks that make submissions to Libor ministration of Libor from the British Bankers Associa-
would be required to base them on actual inter-bank de- tion.[80] The new administrator is NYSE Euronext Rates
posit market transactions and keep records of their trans- Administration Limited,[81] a London-based, UK regis-
actions supporting those submissions. The review also tered company, regulated by the UKs Financial Conduct
recommended that individual banks Libor submissions Authority.[18]
be published, but only after three months, to reduce the
risk that they would be used as a measure of the submit-
ting banks creditworthiness. The review left open the
possibility that regulators might compel additional banks 5 Fines for manipulation
to participate in submissions if an insucient number
do voluntarily. The review recommended criminal sanc-
tions specically for manipulation of benchmark inter- Libor manipulation to raise rate
est rates such as the Libor, saying that existing crimi-
nal regulations for manipulation of nancial instruments Pls go for 5.36 libor again, very important that the setting
were inadequate.[15] Libor rates could be higher and more comes as high as possible ... thanks.
volatile after implementation of the reforms, so nancial

institution customers may experience higher and more

volatile borrowing and hedging costs.[16] The UK gov-
ernment agreed to accept all of the Wheatley Reviews
recommendations and press for legislation implementing Barclays Bank trader in New York to submitter,
them.[17] 29 July 2007[23]
Bloomberg LP CEO Dan Doctoro told the European
Parliament that Bloomberg LP could develop an alterna- On 27 June 2012, Barclays Bank was ned $200 mil-
tive index called the Bloomberg Interbank Oered Rate lion by the Commodity Futures Trading Commission,[5]
that would use data from transactions such as market- $160 million by the United States Department of Jus-
based quotes for credit default swap transactions and cor- tice[6] and 59.5 million by the Financial Services Au-
porate bonds.[74][75] thority[7] for attempted manipulation of the Libor and
Euribor rates.[82] The United States Department of Jus-
tice and Barclays ocially agreed that the manipula-
tion of the submissions aected the xed rates on some
4.4 Reforms
occasions.[83][84][85]
The administration of Libor has itself become a regulated Barclays manipulated rates for at least two reasons. Rou-
activity overseen by the UKs Financial Conduct Author- tinely, from at least as early as 2005, traders sought partic-
ity.[76] Furthermore, knowingly or deliberately making ular rate submissions to benet their nancial positions.
false or misleading statements in relation to benchmark- Later, during the 20072012 global nancial crisis, they
setting was made a criminal oence in UK law under the articially lowered rate submissions to make their bank
Financial Services Act 2012.[18][20][22] seem healthy.[6]
The Danish, Swedish, Canadian, Australian and New Following the interest rate rigging scandal, Marcus Agius,
Zealand Libor rates have been terminated.[18][76] chairman of Barclays, resigned from his position.[86] One
day later, Bob Diamond, the chief executive ocer of
From the end of July 2013, only ve currencies and seven
Barclays, also resigned from his position.[87][88] Bob Dia-
maturities will be quoted every day (35 rates), reduced mond was subsequently questioned by the Parliament of
from 150 dierent Libor rates 15 maturities for each the United Kingdom regarding the manipulation of Li-
of ten currencies, making it more likely that the rates sub- bor rates. He said he was unaware of the manipulation
mitted are underpinned by real trades.[18][76] until that month, but mentioned discussions he had with
Since the beginning of July 2013, each individual submis- Paul Tucker, deputy governor of the Bank of England.[89]
sion that comes in from the banks is embargoed for three Tucker then voluntarily appeared before parliament, to
months to reduce the motivation to submit a false rate to clarify the discussions he had with Bob Diamond. He
portray a attering picture of creditworthiness.[18][77] said he had never encouraged manipulation of the Libor,
A new code of conduct, introduced by a new interim over- and that other self-regulated
[90]
mechanisms like the Libor
sight committee, builds on this by outlining the systems should be reformed.
and controls rms need to have in place around Libor. On 19 December 2012, UBS agreed to pay regulators
For example, each bank must now have a named person $1.5 billion ($1.2 billion to the US Department of Jus-
responsible for Libor, accountable if there is any wrong- tice and the Commodity Futures Trading Commission,
doing. The banks must keep records so that they can be 160m to the UK Financial Services Authority and 60m
 7

CHF to the Swiss Financial Market Supervisory Author- On 23 April 2015, Deutsche Bank agreed to a combined
ity) for its role in the scandal.[91] The investigations re-
US$2.5 billion in nes a US$2.175 billion ne by Amer-
vealed that UBS traders had colluded with other panel ican regulators, and a 227 million penalty by British au-
banks and had made over 2,000 written requests for thorities for its involvement in the Libor scandal. The
movements in rates from at least January 2005 to at leastcompany also pled guilty to wire fraud, acknowledging
June 2010 to benet their trading positions.[92] According
that at least 29 employees had engaged in illegal activity.
to transcripts released by the UKs Financial Services Au-
It will be required to dismiss all employees who were in-
thority, UBS traders also oered nancial inducements volved with the fraudulent transactions.[98] However, no
individuals will be charged with criminal wrongdoing.
to interdealer brokers to help manipulate rates by spread-
ing false information. In one exchange between a UBS In a Libor rst, Deutsche Bank will be required to in-
banker identied as Trader A and an interdealer broker, stall an independent monitor.[99] Commenting on the ne,
the banker wrote, Britains Financial Conduct Authority director Georgina
Philippou said This case stands out for the seriousness
if you keep 6s [i.e., the six-month JPY Li- and duration of the breaches ... One division at Deutsche
bor rate] unchanged today I will fing do Bank had a culture of generating prots without proper
one humongous deal with you Like a 50,000 regard to the integrity of the market. This wasn't lim-
buck deal, whatever I need you to keep it as ited to a few individuals but, on certain desks, it appeared
low as possible if you do that . I'll pay deeply ingrained.[98] The ne represented a record for
you, you know, 50,000 dollars, 100,000 dol- interest rate related cases, eclipsing a $1.5 billion Libor
lars whatever you want I'm a man of my related ne to UBS, and the then-record $450 million
word. ne assessed to Barclays earlier in the case.[98][99] The
size of the ne reected the breadth of wrongdoing at
Subsequent trades between UBS and this broker gener- Deutsche Bank, the banks poor oversight of traders, and
ated more than $250,000 in fees to the broker.[93][94] its failure to take action when it uncovered signs of abuse
internally.[99]
US Assistant Attorney General Lanny Breuer described
the conduct of UBSs as simply astonishing and de- At least three banks JPMorgan, Citigroup, and Bank of
clared the US would seek, as a criminal matter, the America are still[99]under investigation for their involve-
extradition of traders Thomas Alexander William Hayes ment in the fraud.
and Roger Darin.[91] The bank has stated that these and
other nes would probably result in a signicant fourth-
quarter loss in 2012.[91] The ne levied by the FSA, re- 6 See also
duced due to the banks co-operation, was the largest in
the agencys history.[91]
Bank fraud
In September 2013, ICAP settled allegations that they
had manipulated Libor. The United States Department Forex scandal
of Justice charged three former employees, and ICAP
paid $65 million to the USs Commodity Futures Trading Fraud
Commission and 14 million ($22 million) to Britains
Financial Conduct Authority.[95] White-collar crime
In December 2013 the European Commission announced
nes for six nancial institutions participating in one or
more bilateral cartels relating to Libor submissions for 7 References
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in the Libor xing, and other rate manipulations and false Attempted Manipulation of and False Reporting concern-
reporting.[97] ing Libor and Euribor Benchmark Interest Rates.
8 7
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[92] http://www.cftc.gov/PressRoom/PressReleases/
pr6472-12
[93] Time. 20 December 2012 http:
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Daily Mail. Retrieved 28 July 2014.
[98] Deutsche Bank ned record $2.5 billion in rate rigging
inquiry. Reuters. 23 April 2015. Retrieved 23 April
2015.
[99] Ben Protess; Jack Ewing (23 April 2015). Deutsche
Bank to Pay $2.5 Billion Fine to Settle Rate-Rigging
Case. The New York Times. Retrieved 23 April 2015.
8 External links
Barclays Bank
Order Instituting Proceedings, In the matter of: Bar-
clays Bank PLC, United States, Commodity Futures
Trading Commission, 27 June 2012.
Statement of Facts, Non-prosecution agreement:
Barclays Bank PLC, United States, Department of
Justice, 26 June 2012.
Final Notice, Imposing nancial penalty: Barclays
Bank PLC, United Kingdom, Financial Services
Authority, 27 June 2012.
Citigroup
Administrative Action on Citigroup Global Markets
Japan Inc, Japan, Financial Services Agency, 16 De-
cember 2011.
Deutsche Bank
Order Instituting Proceedings, In the matter of:
Deutsche Bank AG, United States, Commodity Fu-
tures Trading Commission, 23 April 2015.
Statement of Facts, Deferred prosecution agree-
ment: Deutsche Bank AG, United States, Depart-
ment of Justice, 23 April 2015.

Consent Order (PDF). In the Matter of: Deutsche
Bank AG. New York State Department of Financial
Services. 23 April 2015.
Final Notice 2015: Deutsche Bank AG, United
Kingdom, Financial Conduct Authority, 23 April
2015.
ICAP Europe Limited
Order Instituting Proceedings, In the matter of:
ICAP Europe Limited, United States, Commodity
Futures Trading Commission, 25 September 2013.
Final Notice, Imposing nancial penalty: ICAP Eu-
rope Ltd, United Kingdom, Financial Conduct Au-
thority, 25 September 2013.
United States of America v. Darrell Read, Daniel
Wilkinson, and Colin Goodman, United States, De-
partment of Justice, 25 September 2013.
Lloyds Bank
Order Instituting Proceedings, In the matter of:
Lloyds Banking Group PLC, United States, Com-
modity Futures Trading Commission, 28 July 2014.
Final Notice, Imposing nancial penalty: Lloyds
Bank PLC and Bank of Scotland PLC, United King-
dom, Financial Services Authority, 28 July 2014.
Rabobank
Order Instituting Proceedings, In the matter of:
Rabobank, United States, Commodity Futures
Trading Commission, 29 October 2013.
Statement of Facts, Deferred prosecution agree-
ment: Rabobank, United States, Department of Jus-
tice, 29 October 2013.
Final Notice, Imposing nancial penalty:
Rabobank, United Kingdom, Financial Conduct European Union
Authority, 29 October 2013.
Libor and Euribor investigation ndings and mea-
sures for Rabobank, Netherlands, De Nederland-
sche Bank (the Dutch Central Bank), 29 October
2013.
United States of America v. Paul Robson, Paul
Thompson, Tetsuya Motomura, United States, De-
partment of Justice, 13 January 2014.
Robson et al Complaint, Exhibit of Facts, United
States, Department of Justice, 13 January 2014.
Royal Bank of Scotland
11
Order Instituting Proceedings, In the matter of:
Royal Bank of Scotland PLC, United States, Com-
modity Futures Trading Commission, 6 February
2013.
Plea agreement: United States of America v. RBS
Securities Japan, United States, Department of Jus-
tice, 5 February 2013.
Final Notice, Imposing nancial penalty: Royal
Bank of Scotland PLC, United Kingdom, Financial
Services Authority, 6 February 2013.
Administrative actions against RBS Securities Japan
Limited, Japan, Financial Services Agency, 12 April
2013.
UBS
Order Instituting Proceedings, In the matter of:
UBS AG, United States, Commodity Futures Trad-
ing Commission, 19 December 2012.
Statement of Facts, Non-prosecution agreement:
UBS AG, United States, Department of Justice, 18
December 2012.
Final Notice, Imposing nancial penalty: UBS AG,
United Kingdom, Financial Services Authority, 19
December 2012.
FINMA Summary Report UBS LIBOR, Switzer-
land, Swiss Financial Market Supervisory Author-
ity, 19 December 2012.
United States of America v. Tom Hayes and Roger
Darin, United States, Department of Justice, 12 De-
cember 2012.
Hayes et al Complaint, Exhibit of Facts, United
States, Department of Justice, 12 December 2012.
Administrative Actions against UBS Securities
Japan Ltd and UBS AG, Japan Branches, Japan, Fi-
nancial Services Agency, 16 December 2011.
Euro Interest Rate Derivatives Cartel: Barclays,
Deutsche Bank, RBS, Socit Gnrale, Belgium,
Directorate-General for Competition, 12 December
2013.
Swiss Franc Interest Rate Derivatives Cartel: JP
Morgan, RBS, Belgium, Directorate-General for
Competition (European Commission), 21 October
2014.
Yen Interest Rate Derivatives Cartel: Citigroup,
Deutsche Bank, JP Morgan, RBS, RP Martin, UBS,
Belgium, Directorate-General for Competition (Eu-
ropean Commission), 12 December 2013.
12 8 EXTERNAL LINKS

Government

The Wheatley Review of LIBOR: Final Report,

United Kingdom, HM Treasury, 28 September
2012.

Principles for Financial Benchmarks: Final Re-

port, Spain, International Organization of Securities
Commissions, July 2013.
Documents concerning Barclays and the Libor mat-
ter, United States, Federal Reserve Bank of New
York, 13 July 2012.

Correspondence with the NY Fed and British

Bankers Association in relation to Libor, United
Kingdom, Bank of England, 13 July 2012.
 13

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