The July 1 complaint is an amended version of a class action suit originally filed earlier this year. The action against JP Morgan Chase, Bank of America, Citigroup, Barclays, and numerous other banks uses both documentary evidence and data to argue that banks have been purposefully depressing interest rates.
Every day, by a. LIBOR was originally created during a time when banks were borrowing a lot of cash from each other. Beginning in the nineties and early s, however, banks began to use other venues, like the Treasury Repo market, to obtain financing when needed. Interbank lending tapered off. Because of this, for years and years, when banks on the LIBOR panel submitted numbers, they were apparently just submitting guesses based on what they believed it would cost to borrow, if they actually were borrowing.
In essence, banks are contributing a daily judgment about something they no longer do. In other words, banks were guesstimating.
After the crash, regulators sniffed out two motives for manipulation. The first cases involved suppressing LIBOR in and , to create an artificial impression of market stability during the crisis. In a second, more grotesque form of corruption, individual traders at various banks goaded LIBOR submitters to move rates to protect certain investments. Even though these two problems were ostensibly corrected, LIBOR was apparently still being contrived.
As evidence, the suit points to published statements from the banks themselves, including members of the The Alternative Reference Rates Committee. A doctoral program that produces outstanding scholars who are leading in their fields of research. A full-time MBA program for mid-career leaders eager to dedicate one year of discovery for a lifetime of impact. This month MBA program equips experienced executives to enhance their impact on their organizations and the world.
Tom Hayes, a trader for both UBS and Citigroup, and the key player in the Libor scandal, went along with other traders, brokers, and their bosses with a scheme to manipulate Libor to benefit their trades. The scam, which began around and went on for several years, cost the banks and the public billions of dollars. Did writing the book make you think about the ethics of the banking industry or of any industry? It was duplicity of a very high order. In this industry, the culture is to make as much money as quickly as possible at all costs, and no behavior is deemed too wild or inappropriate.
What drew you to this scandal and to Tom Hayes? I found his story captivating. Each time Hayes made a trade, he would have to decide whether to lay off some of his risk by hedging his position using, for example, other derivatives. He liked to think of it as a living organism with thousands of interconnected moving parts.
In a corner of one of his screens was a number he looked at more than any other: his rolling profit and loss. By the summer of , the mortgage crisis in the US caused banks and investment funds around the world to become skittish about lending to each other without collateral. Firms that relied on the so-called money markets to fund their businesses were paralysed by the ballooning cost of short-term credit.
On 14 September, customers of Northern Rock queued for hours to withdraw their savings after the bank announced it was relying on loans from the Bank of England to stay afloat.
After that, banks were only prepared to make unsecured loans to each other for a few days at a time, and interest rates on longer-term loans rocketed. Libor, as a barometer of stress in the system, reacted accordingly. By December it had soared to basis points. Everyone could see that Libor rates had shot up, but questions began to be asked about whether they had climbed enough to reflect the severity of the credit squeeze.
By August , there was almost no trading in cash for durations of longer than a month. In some of the smaller currencies there were no lenders for any time frame. Yet, with trillions of dollars tied to Libor, the banks had to keep the trains running.
The individuals responsible for submitting Libor rates each day had no choice but to put their thumb and forefinger in the air and pluck out numbers. A game of brinkmanship had developed in which rate-setters tried to predict what their rivals would submit, and then come in slightly lower. If they guessed wrong and input rates higher than their peers, they would receive angry phone calls from their managers telling them to get back into the pack.
On trading floors around the world, frantic conversations took place between traders and their brokers about expectations for Libor. Nobody knew where Libor should be, and nobody wanted to be an outlier. Even where bankers tried to be honest, there was no way of knowing if their estimates were accurate because there was no underlying interbank borrowing on which to compare them.
The machine had broken down. Vince McGonagle, a small and wiry man with a hangdog expression, had been at the enforcement division of the Commodity Futures Trading Commission CFTC in Washington for 11 years, during which time his red hair had turned grey around the edges. While his classmates took highly paid positions defending companies and individuals accused of corporate corruption, McGonagle opted to build a career bringing cases against them.
He joined the agency as a trial attorney and was now, at 44, a manager overseeing teams of lawyers and investigators. McGonagle closed the door to his office and settled down to read the daily news. In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London interbank offered rate, known as Libor, is becoming unreliable.
That was having the effect of distorting Libor, and therefore trillions of dollars of securities around the world. They feared if they were honest they could go the same way as Bear Stearns , the year-old New York securities firm that had collapsed the previous month.
The big flaw in Libor was that it relied on banks to tell the truth but encouraged them to lie. They were prevented from deviating too far from the truth because their fellow market participants knew what rates they were really being charged. Over the previous few months, that had changed. Banks had stopped lending to each other for periods of longer than a few days, preferring to stockpile their cash. After Bear Stearns there was no guarantee they would get it back.
With so much at stake, lenders had become fixated on what their rivals were inputting. Any outlier at the higher — that is, riskier — end was in danger of becoming a pariah, unable to access the liquidity it needed to fund its balance sheet.
Soon banks began to submit rates they thought would place them in the middle of the pack rather than what they truly believed they could borrow unsecured cash for. The motivation for low-balling was not tied to profit — many banks actually stood to lose out from lower Libors. This was about survival.
As the financial crisis deepened, central bankers monitored Libor in different currencies to see how successful their latest policy announcements were in calming markets. If banks were lying about Libor, it was not just affecting interest rates and derivatives payments. It was skewing reality. There was no inkling at this stage that traders such as Hayes were pushing Libor around to boost their profits, but here was a benchmark that relied on the honesty of traders who had a direct interest in where it was set.
In both cases, the body responsible for overseeing the rate had no punitive powers, so there was little to discourage firms from cheating. When McGonagle finished reading the Wall Street Journal article, he emailed colleagues and asked them what they knew about Libor.
His team put together a dossier, including some preliminary reports from within the financial community. While there was no evidence of manipulation by specific firms, McGonagle was coming around to the idea of launching an investigation.
Cecere set in motion plans for Citigroup to join the Tibor Tokyo interbank offered rate panel which, Hayes would crow, was even easier to influence than Libor because fewer banks contributed to it. Hayes wanted to hit the ground running when he started trading, and being able to influence the two benchmarks that helped determine the profitability of the bulk of his positions was an important step.
On the afternoon of 8 December, Cecere was at his desk on the Tokyo trading floor. He had an office but seldom used it, preferring to be amid the action. He believed that six-month yen Libor was too high. After checking the submissions from the previous day, he was surprised to see that Citigroup had input one of the highest figures. Cecere contacted the head of the risk treasury team in Tokyo, Stantley Tan, and asked him to find out who the yen-setter was and request that he lower his input by several basis points.
Cecere checked the Libors again later that night and was annoyed to see that Citigroup had only reduced its six-month rate by a quarter of a basis point. The following day, Tan went back to the treasury desk in London as requested.
The response he got back from his UK counterpart left little room for misinterpretation: it was a thinly veiled warning to back off.
0コメント