Bloomberg reports that the scandal over the manipulation of Libor has the potential to become one of the most costly and consequential in the history of banking. If the financial institutions involved want to prevent it from overwhelming their businesses and damaging the broader economy, they’ll have to act fast.
Investigators in the U.S., Canada, Europe and Asia are piecing together a breathtaking portrait of avarice and deceit. To hide their institutions’ problems during the financial crisis, or often to boost their traders’ profits, bankers knowingly submitted false data for the calculation of the London Interbank Offered Rate, a benchmark interest rate that influences the value of hundreds of trillions of dollars in financial contracts around the world, including floating-rate mortgages, corporate loans and interest-rate swaps.
The roughly $450m in fines paid by Barclays, the first bank to fess up, is only the beginning. Regulators can and should hit more banks with large fines to prevent a repeat. More important, criminal charges for the first time could threaten a significant number of bankers and traders with jail terms for their actions during the financial crisis - a much needed comeuppance that could help reset the industry’s moral compass.
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In the meantime, The Financial Times reports that 12 global banks that have been publicly linked to the Libor rate-rigging scandal face as much as $22bn in combined regulatory penalties and damages to investors and counterparties, according to Morgan Stanley estimates.
The calculation excludes the potential fallout from ongoing US and European Union cartel investigations, which could result in multibillion-dollar fines.
And Reuters reports that Barclays' embattled former Chief Executive Bob Diamond is being represented by top white-collar defence lawyer Andrew Levander in a widening scandal over the manipulation of benchmark interest rates, Levander's law firm confirmed on Thursday.
More than a dozen current and former employees of several large banks under investigation have hired defence lawyers over the past year, but Levander's role is one of the most high-profile.
Finally Bloomberg reports that U.S. Treasury Secretary Timothy Geithner in 2008 sent the Bank of England recommendations for improving calculations of the London interbank offered rate, now at the center of a scandal over allegations the benchmark was manipulated.
Geithner, who was president of the Federal Reserve Bank of New York at the time, sent Bank of England Governor Mervyn King six recommendations. One was to 'establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting', according to a memo obtained by Bloomberg News.