Eight of Europe’s largest banks have been caught red handed forming cartels to fix interest rates. Two of them, RBS and Barclays had revealed the existence of the cartels and their part in them and as a result they have been spared any penalty. The others, including the hapless and hopeless state owned Royal Bank of Scotland, have been fined €1.7 billion.
What happened is complicated to explain so I shall endeavour to do so in simple terms. The banks offered their customers products to hedge against interest rate fluctuations and currency. The banks then colluded to rig interest rates. It is a bit like a bookmaker taking bets on the result of a horse race and then rigging the race so that the bookmaker will pay out the least amount of money.
RBS was fined €391 million. Barclays and UBS would have been fined €2.5 billion and €690 million, but were let off having turned Queen’s evidence on the plot. The list of participants include Deutsche Bank, which received the biggest fine of 725.36m euros, Societe Generale, JP Morgan, Citibank and the brokers RP Martin.
This follows news that bankers in the UK had been paid much more than ever in the past year. Obviously, old habits die hard. Regulators have a difficult path to tread; they must prevent this kind of criminal misfeasance by banks and the only powers they have is to fine banks and put a few bankers in prison. Make the fines too high and the banks will become bankrupt, wiping out the savings of millions. Make the fines too low and the banks will treat fines as just another business expense in a highly profitable activity conducted illegally.
Filed under: climate change Tagged: | fines, Royal Bank of Scotland, banks, RBS, bankers, interest rates, Barclays, UBS, interest rate manipulation, European Commission fines banks, rigging the market, derivative, Deutsche Bank