Thursday, March 21, 2013

German regulator finds flaws in how Deutsche Bank supervised Libor manipulation

Reuters reports that Bafin, the German market regulator, disapproved of Deutsche Bank's see no evil approach to supervising the manipulation of Libor.

It is standard operating practice at banks for senior managers to supervise in such a way that they can avoid taking responsibility by maximizing their use of the claim of plausible deniability.  As in, "we didn't know that the trader was telling the individual who made our Libor submission to submit false information".

The fact that Bafin is going to give Deutsche Bank a slap on the wrist for its involvement in manipulating Libor simply confirms that regulatory oversight is inadequate to prevent this type of behavior in the future.  The same is true for fines that are the equivalent of paying for a parking ticket.

Regular readers know that the manipulation of Libor highlights the need to bring transparency back to the financial system.

The only way to prevent Libor or similar benchmark interest rates from being manipulated in the future is for the banks to provide ultra transparency.

By disclosing their current global asset, liability and off-balance sheet exposures on an ongoing basis, banks that are looking to borrow make it possible for banks with deposits to lend to evaluate their risk and solvency.  This unfreezes and keeps unfrozen the unsecured interbank lending market.

With ultra transparency, it is also possible to based Libor and similar benchmark interest rates off of actual transactions.  Market participants can use all the transaction of a subset.

With ultra transparency, there is no need for complex rules or regulatory oversight of Libor or similar benchmark interest rates.

German markets watchdog Bafin is set to rebuke Deutsche Bank (DBKGn.DE: QuoteProfileResearchStock Buzz) over how it supervised its contribution to the setting of inter-bank lending rates at the heart of the international rate-rigging scandal, several sources familiar with Bafin's investigation said. 
However, the watchdog's report will focus on "organizational flaws" at Germany's biggest lender rather than placing blame on Deutsche's co-chief executives Anshu Jain and Juergen Fitschen, or their predecessor Josef Ackermann, one of the sources said....

"It won't be much more than finger-wagging," the person said of the report, whose preliminary conclusions are due to be passed on to Berlin by the end of the month....

German financial daily Handelsblatt also said on Thursday, citing "insiders", that Bafin was focusing in on organizational issues at Deutsche and that there would be no consequences for current or former board members.

No comments: