Just what banking industry needs – another scandal. The Wall Street Journal reported this morning that Canada’s Competition Bureau is investigating several multinational banks regarding allegations that traders attempted to manipulate a key benchmark interest rate that is used to set prices on a wide array of financial products from auto loans to corporate debt.
According to the Journal report, no banks or individuals have yet been accused of wrongdoing, but that a “cooperating party” thought to be the Swiss bank UBS has told the regulator that, “people involved in the alleged scheme ‘were able to move’ interest rates.”
The six banks fingered in the report are Citigroup, Deutsche Bank, HSBC Holdings, JPMorgan Chase, Royal Bank of Scotland and the aforementioned UBS. Reports earlier in the week revealed that other regulators in the U.S., Japan, and the U.K. are looking into the matter as well.
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The London Interbank Offered Rate, or LIBOR, is set daily by a panel of sixteen banks through the British Bankers Association. It’s basically an average of the rates at which these banks can borrow from each other.
According to reports, banks submitted artificially high or low rates in order to manipulate this interest rate number. Since LIBOR is used to price a wide array of financial products, this would give banks a distinct advantage in trading.
The Financial Times has reported that more than a dozen trader and brokers have been suspended or fired in relation to the probe.