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Zurich - Switzerland is investigating 12 US, European and Japanese banks suspected of conspiring to manipulate interbank lending rates used to set interest rates on hundreds of trillions of dollars of securities.
The Swiss Competition Commission (COMCO) said on Friday it had received information of possible collusion between derivatives traders concerning London Interbank Offered Rate (LIBOR) and Tokyo Interbank Offered Rate (TIBOR).
“Derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour,” COMCO said.
Libor is derived from the rates that banks say they charge each other and is used worldwide as a benchmark for setting rates on about $350 trillion of derivatives and other financial products. Small changes in the rate can have large impacts on the amounts of interest that can be charged.
It is also the benchmark reference rate used by the Swiss National Bank in setting monetary policy.
COMCO said those under investigation are Bank of Tokyo-Mitsubishi UFJ, Citigroup, Credit Suisse , Deutsche Bank, HSBC Holdings, JP Morgan Chase & Co., Mizuho Financial Group Inc., Rabobank Groep N.V., Royal Bank of Scotland Plc Societe Generale, Sumitomo Mitsui Banking Corporation and UBS.
US, European Union and British regulators are also investigating whether banks understated interbank rates to reduce borrowing costs and downplay investor panic during the banking crisis.
“We are in contact with the US Department of Justice and the EU Competition Commission,” said Olivier Schaller, a COMCO official. “At present we are focusing on the problems that appeared in the Swiss market. We are at the beginning of our investigation.”
Banks probed in other investigations but not included in the Swiss probe include Barclays, West LB and Bank of America.
“If we see others are involved then we will enlarge our investigation,” said Schaller.
Libor in spotlight
Last year a European asset manager sued a dozen US, European and Japanese banks, including Deutsche Bank, UBS and Credit Suisse, accusing them of conspiring to manipulate LIBOR.
Later in the year, Charles Schwab Corp filed two similar lawsuits accusing 11 major banks of conspiring to manipulate LIBOR.
“We are taking these investigations very seriously and are fully co-operating with the authorities,” a UBS spokesman said.
A SocGen spokeswoman said: “The bank is prepared to respond to any enquiry from relevant authorities on any information they should wish to obtain.”
RBS, Credit Suisse and Deutsche Bank declined to comment. The other banks involved in the Swiss probe could not immediately be reached.
In July last year UBS said it had been granted leniency or immunity by some authorities in return for cooperating in their Libor manipulation investigations.
LIBOR rates spiked during the crisis but were widely criticised at the time for not having risen enough to reflect real interbank prices.
Banking sources have said there was some political pressure to keep a lid on Libor during the credit crunch and commercial banks were lobbied to keep borrowing costs down.
“There was the fear that if Libor went up a large number of ARMS (adjustable rate mortgages) would reset at meaningfully higher rates and default rates would explode,” said a source from one of the LIBOR reporting banks last year.
During the liquidity crisis, when banks were reluctant to lend to one another, central banks stepped in to fill the void.
“To bring down LIBOR central banks can do one of two things: they can reduce the base rate or flood the market with liquidity, and in this case they did the latter,” he said.
The Swiss Competition Commission (COMCO) said on Friday it had received information of possible collusion between derivatives traders concerning London Interbank Offered Rate (LIBOR) and Tokyo Interbank Offered Rate (TIBOR).
“Derivative traders working for a number of financial institutions might have manipulated these submissions by coordinating their behaviour, thereby influencing these reference rates in their favour,” COMCO said.
Libor is derived from the rates that banks say they charge each other and is used worldwide as a benchmark for setting rates on about $350 trillion of derivatives and other financial products. Small changes in the rate can have large impacts on the amounts of interest that can be charged.
It is also the benchmark reference rate used by the Swiss National Bank in setting monetary policy.
COMCO said those under investigation are Bank of Tokyo-Mitsubishi UFJ, Citigroup, Credit Suisse , Deutsche Bank, HSBC Holdings, JP Morgan Chase & Co., Mizuho Financial Group Inc., Rabobank Groep N.V., Royal Bank of Scotland Plc Societe Generale, Sumitomo Mitsui Banking Corporation and UBS.
US, European Union and British regulators are also investigating whether banks understated interbank rates to reduce borrowing costs and downplay investor panic during the banking crisis.
“We are in contact with the US Department of Justice and the EU Competition Commission,” said Olivier Schaller, a COMCO official. “At present we are focusing on the problems that appeared in the Swiss market. We are at the beginning of our investigation.”
Banks probed in other investigations but not included in the Swiss probe include Barclays, West LB and Bank of America.
“If we see others are involved then we will enlarge our investigation,” said Schaller.
Libor in spotlight
Last year a European asset manager sued a dozen US, European and Japanese banks, including Deutsche Bank, UBS and Credit Suisse, accusing them of conspiring to manipulate LIBOR.
Later in the year, Charles Schwab Corp filed two similar lawsuits accusing 11 major banks of conspiring to manipulate LIBOR.
“We are taking these investigations very seriously and are fully co-operating with the authorities,” a UBS spokesman said.
A SocGen spokeswoman said: “The bank is prepared to respond to any enquiry from relevant authorities on any information they should wish to obtain.”
RBS, Credit Suisse and Deutsche Bank declined to comment. The other banks involved in the Swiss probe could not immediately be reached.
In July last year UBS said it had been granted leniency or immunity by some authorities in return for cooperating in their Libor manipulation investigations.
LIBOR rates spiked during the crisis but were widely criticised at the time for not having risen enough to reflect real interbank prices.
Banking sources have said there was some political pressure to keep a lid on Libor during the credit crunch and commercial banks were lobbied to keep borrowing costs down.
“There was the fear that if Libor went up a large number of ARMS (adjustable rate mortgages) would reset at meaningfully higher rates and default rates would explode,” said a source from one of the LIBOR reporting banks last year.
During the liquidity crisis, when banks were reluctant to lend to one another, central banks stepped in to fill the void.
“To bring down LIBOR central banks can do one of two things: they can reduce the base rate or flood the market with liquidity, and in this case they did the latter,” he said.
