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Q&A: what is Libor and what did the banks do to it?
Over a billion pounds has been handed out in fines over the Libor scandal, but what exactly is it?
UBS chief executive Sergio Ermotti said the bank regretted this ‘unethical behaviour’ and that ‘no amount of profit is more important than the reputation of this firm’.
The Royal Bank of Scotland has been fined a total of £390 million, £87.5 million of which is made up by the FSA’s penalty. The rest are DoJ and CFTC fines.
RBS has been found wanting in much the same areas as UBS. It made Libor submissions that benefited the bank’s investment arm and allowed traders to make Libor submissions to benefit themselves.
It also made Libor submissions that boosted the profit and loss accounts of its money market trading.
On top of the widespread misconduct, RBS failed to put proper controls in place to prevent Libor manipulation but told the regulator that it had. In fact some of the Libor failings weren’t dealt with until March 2012.
Stephen Hester, RBS group chief executive, said the bank’s commitment to change was ‘absolute’ but it is interesting that RBS chairman Philip Hamilton noted a need to ‘fix the culture of the banking industry’ before he addressed RBS’ own failings.
What are the regulators doing?
Just because fines have been handed out to three of the major Libor-rigging players, it doesn’t mean the regulator can rest easy. Its investigation into which banks were involved is still on-going. It is also questioning the future of Libor operations.
In September head of the regulator Martin Wheatley outlined a 10-point plan to overhaul how Libor operates. Reforms included making rate rigging a criminal offence and stripping the BBA’s role in compiling Libor rates and replacing it with a new body.
Wheatley also wants to streamline the number of Libor rates it calculates to just 20 from 150 and make more banks submit rates.
The Wheatley reforms were followed up by an announcement in November from the BBA launching a consultation paper which recommended a phased-in approach to streamlining Libor in the early months of 2013.
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