EU Commission turns up pressure on banks over Libor

The Financial Times reports that the EU Commission is turning up pressure on the banks to settle the Libor interest rate rigging scandal by pointing out that it can assess a fine equal to 10% of each bank's annual revenue for every market it was involved in manipulating rates.

At first blush, the idea that a bank could lose 30% of its annual revenue for having manipulated benchmark interest rates on a global basis (Libor, Euribor and Tibor) sounds like a significant penalty.

However, consider that these rates have probably been manipulated for 2+ decades and suddenly a fine of this size might not be large enough to make the banks disgorge all the profits they made from manipulating the benchmark interest rates.

To date, the fines assessed to the banks have been the equivalent of parking tickets and will do absolutely nothing to stop bankers from engaging in manipulating interest rates in the future.  What the fines will do is send a message to the bankers not to leave an electronic trail while they are manipulating interest rates.

The European Commission’s 18-month antitrust investigation, previously known to include yen and euro interbank rates, has been extended to include Swiss franc-denominated swaps and poses a significant regulatory threat to the financial institutions under scrutiny, according to people familiar with the probe. 

The commission can impose a maximum penalty equivalent to 10 per cent of a company’s global turnover for each cartel it is found to be involved with. A bank implicated in all three rate-fixing cases could, for example, face fines of up to 30 per cent of total revenues....