Eight major financial institutions in Europe have been hit with a fine of a combined total of EUR 1.7bn (US$2.31bn) following a European Commission investigation into Libor-rigging, but most of the potential fines were voided by active participants in the schemes because they co-operated with the investigation.
Barclays avoided a fine of EUR 690m for revealing the existence of the cartel dealing with rigging Euro interest rate derivatives (EIRDs) and UBS received the same kind of immunity for informing about a similar operation dealing with Yen interest rate derivatives (YIRDs).
UBS participated in parts of the scheme for as long as 10 months and was discovered to have taken part in five of seven infringements. For the bank’s help with unveiling what went on behind the scene, its potential fine of EUR 2.5bn was voided.
The Royal Bank of Scotland (RBS) also found itself in the EIRD-YIRD-hotbed for eight months and was fined a total of EUR 391m. The taxpayer-backed lender settled with the European authorities over its attempts to manipulate European and Japanese interest rates.
Philip Hampton, the chairman of RBS, said in a statement: “We acknowledged back in February (2013) that there were serious shortcomings in our systems and controls on this issue, but also in the integrity of a very small number of our employees.
“Today is a another sobering reminder of those past failing and nobody should be in any doubt about how seriously we have taken this issue.”
The largest individual fine was paid by Deutsche Bank for its involvement in both European and Japanese rate fixing, with the German bank forking out a total of EUR 725m in penalties.
Joaquin Almunia, EC vice president in charge of competition policy, was stunned over the scope of the infringements.
“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other,” Almunia said.
Derivatives are contracts traded on financial markets that are used to transfer risk. In recent years derivatives have developed into a main pillar of the international financial system. The most common basic interest rate derivatives are: forward rate agreements, interest rate swaps, interest rate options, and, interest rate futures.
Many economic analysts agree today that it was the wide usage of credit default swap derivatives in the United States that led to the global economic collapse in 2008.