British Bank Fined for Manipulating Interest Rates

Photo (cc) by ell brown

The Royal Bank of Scotland will pay $612 million to settle claims it cheated on benchmark interest rates banks use to loan each other money.

Those rates, known as the London Interbank Offered Rate or LIBOR, affect just about every kind of loan you can think of. We summed it up in The LIBOR Scandal for Dummies last summer…

While the label makes it sound complicated, it’s just the average interest rate big banks pay to borrow from each other. It’s called “London” because it’s computed in that city. But that’s misleading, because it affects interest rates worldwide on some (but not all) adjustable-rate mortgages, credit cards, and student, car, and other types of loans. In addition to loans, it’s also used to set rates for institutional investments – the kind that mutual funds, pension funds, and government agencies might use to earn interest on short-term investments.

Why do it? In short, to make money. The banks collectively set the rates, and it’s becoming increasingly clear that some of them were collectively rigging them, too. Another British bank (Barclay’s, $450 million) and the biggest Swiss bank (UBS, $1.5 billion) have also already settled. Many others are still being investigated, according to Reuters, including some names more familiar to Americans like JP Morgan and Citigroup.

You can read some of the evidence against RBS online; there are many embarrassing exchanges documented between employees. The Guardian rounded up some of the best, including chats where they promise each other food or sex (jokingly?) to tweak rates. Here’s a sample…

May 14, 2009:

Swiss Franc Trader: [Primary Submitter] pls can we get super high 3m[,] super low 6m

Swiss Franc Trader: PRETTY PLEASE!

Primary Submitter: 41 & 51

Swiss Franc Trader: if u did that[,] i would lvoe [sic] u forever

Primary Submitter: 41 & 55 then …

Swiss Franc Trader: if u did that i would come over there and make love to you[,] your choice

Primary Submitter: 41+51 it is

Swiss Franc Trader: thouht [sic] so

Primary Submitter: so shallow

Amazing, isn’t it?

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