The rewards of early settlement in the scandal involving manipulation of the London Interbank Offered Rate, or Libor, are becoming more obvious.
Barclays and UBS, the first banks to settle with financial agencies over allegations of rigging Libor, have just saved $930 million and $3.4 billion respectively in trust-busting fines after blowing the whistle on other miscreants to the European Commission. Their lenient treatment highlights the risks in delaying settlements, and the potentially extreme penalties when wrongdoing is categorized as anticompetitive.
The other five banks and one broker involved in the settlement with the European antitrust authorities did receive reduced fines for cooperation. But the financial hit was still significant. Deutsche Bank’s was $980 million, cut from $1.3 billion. The size reflects its large market share in interest rate derivatives, which is one of the multipliers used by the European Commission in setting penalties.
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The soft treatment of Barclays and UBS may seem unfair, but regulators won’t mind. Barclays seemed to have made a tactical error when it was first to come clean on attempted Libor-rigging last year. That was a possible disincentive to firms to take the lead in coming clean with the authorities, and implicating rivals. But there are now clear financial benefits to stepping forward. That will focus management attention when the European Commission is also examining the possible existence of similar cartels in areas including foreign exchange and credit default swaps.
Without the various reductions for good behavior, the total fines levied on Dec. 4 would have been $7.4 billion — more than three times what was actually imposed. That raises the stakes for Deutsche, Société Générale, JPMorgan and Citigroup, all of which are yet to conclude rate-rigging investigations.
The three banks holding out on European Commission settlements — JPMorgan Chase, Crédit Agricole and HSBC — may be doing so for principled reasons, but they are taking a risk. The European Commission’s methodology fines cartel participants based on their market position in the rigged products, multiplied by the seriousness of misbehavior. That means long-lasting wrongdoing by one individual in partnership with another in a rival firm could generate crippling fines — potentially 10 percent of global revenue. For now, the commission has shifted the balance of financial pain in the Libor scandal back in the whistle-blowers’ favor.
Dominic Elliott and George Hay are columnists at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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Libor Bank Fines Reflect Rewards of Cooperating – New York Times
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DOMINIC ELLIOTT
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