Revelations that banks manipulated the benchmark Libor rate sent shockwaves across the financial world this summer. (Libor, despite sounding like a Tolkien villian — "People of Middle Earth! We must unite in defense of the realm against the forces of Mordor and Libor!" — stands for "London interbank offered rate" and forms the basis for trillions of dollars worth of lending transactions around the world.)
This week, an interesting juxtaposition: We learn from Bloomberg that banking giant UBS will pay a settlement of up to $1.6 billion to various government entities on both sides of the Atlantic for participating in the manipulation of Libor. We also read in Washington Post how, despite its vulnerability to such manipulation, Libor is such an ingrained part of the system that no one seems to be able to stop using it. It appears that financial constructs, like banks, can be too big to fail.
What is missing is any compensation for the millions who had higher rates forced on them , especially for adjustable rate loans based on LIBOR. $1.6B doesn’t even come close.
Why are we settling for meager civil penalties? Why only the Corporations where $1.6B is part of the cost of doing business. How much did they make from the manipulation? Why not look at that figure for a penalty.
As a former Bank regulator, I find it hard to believe that all of the rigging went unnoticed by anyone in the Bank, besides the perpetrators. No one knew but members of this cabal?
I guess with all of the world’s problems in the financial arena, this is just a ho-hum exercise to placate some regulatory body and “wow” the public with $billion dollar penalties. What is the percentage the penalty represents of the gross operating revenue of UBS?
Matters not I suppose. No one gives a damn anymore. Payoffs rule!
Richard Isacoff
rii@isacofflaw.com