Royal Bank of Scotland (RBS) has been fined £390 million for its attempts at manipulating the London Interbank Offered Rate (LIBOR).
LIBOR is essentially the rate at which banks lend money to each other. Every day banks are required to submit their interbank borrowing rates confidentially to Thomson Reuters, which then works out LIBOR on behalf of the British Bankers’ Association. For more on LIBOR and why it matters, check out What is Libor?
An FSA investigation found that over a four year period between January 2006 and November 2010 employees of RBS engaged in all sorts of activities that would lead to incorrect LIBOR submissions. By lying about what its real interest rates were, RBS was in a position to manipulate the market, allowing its traders to cash in.
The FSA’s investigation found at least 219 documented requests for inappropriate submissions, with 21 individuals involved identified.
The exchange below comes from the FSA’s final notice to RBS and is a charming demonstration of the speed at which requests from the traders could change direction. The day before the trader in question had asked for LIBOR to be reported higher than it actually was.
Derivatives Trader B: can we lower our fixings today please [Primary Submitter B]
Primary Submitter B: make your mind up, haha, yes no probs
Derivatives Trader B: im like a whores drawers
Incredibly RBS did not have any LIBOR-related systems and controls in place until March 2011.
[SPOTLIGHT]£87.5 million of the fine is going to the FSA, with the rest going to the US Department of Justice and Commodity Futures Trading Commission.
Cleaning up the LIBOR mess
RBS is the third bank to be fined for its LIBOR activities. Barclays was fined a total of £290 million last summer, while UBS had to hand over around £940 million to US, UK and Swiss regulators.
There is also a consultation taking place at the moment, looking at how to improve LIBOR. We looked in detail at the proposals in Libor gets better but still isn't perfect.
What does it mean for you?
While in theory lying about LIBOR could have had an impact on some mortgages, there’s no evidence at the moment that anybody actually suffered as a result of this LIBOR manipulation. It’s more a demonstration of how fast and loose some of the world’s biggest banks played with the rules – and our money.
After all, 82% of RBS is owned by the State.
That’s part of the reason that the Government’s Banking Reform Bill, which was presented to parliament this week, includes the plan to force banks to split their everyday banking activities from the more ‘volatile’ investment activities.
And it’s something to bear in mind next time you open a bank account or savings account. Is a bank that behaves like this really the sort of institution you want to trust with your money?
More on LIBOR:
Libor gets better but still isn't perfect
Barclays Libor scandal: what should happen now
Four thoughts about the Libor scandal