Monday, December 3, 2012

UBS trying to settle Libor claims for $450 million

As reported by the Guardian, UBS is trying to settle its participation in manipulating Libor for $450 million.

A fine that is likely to be a fraction of the benefit to UBS from manipulating the rate.

The Swiss bank UBS is close to a settlement with US and British authorities and is expected to pay more than $450m (£280m) over claims that some of its employees submitted false Libor rates, the New York Times reported.... 
In June, the British bank Barclays was fined more than $450m for manipulating Libor benchmark interest rates, prompting the resignation of its chairman and chief executive. 
The reliability of the London interbank offered rate, or Libor, which underpins transactions worth trillions of dollars, has been cast into doubt by the rate manipulation accusations. Libor is used to set interest rates on credit cards, student loans and mortgages.
Regular readers know that your humble blogger proposed that fixing Libor meant requiring the banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

This solved two problems.

First, it unfroze and kept unfrozen the interbank lending market as banks with deposits to lend would now have the information they needed to assess the risk of the banks looking to borrow.

Second, it allowed Libor to be based off of actual transactions from a functioning interbank lending market.

Of course, the Wheatley Review rejected this proposal (heck, they wouldn't even publish my comment on their public consultation).  Instead, it backed a solution that uses complex rules and regulatory oversight as a substitute for transparency.

However, in light of the Bank of England Financial Policy Committee's recent push to have banks clean up their balance sheets and provide the market with the data to allow market participants to independently confirm this, a rethink of the Wheatley Review recommendations is now in order.

Your humble blogger is cautiously optimistic that my proposed solution will be adopted.

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