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Issue #1534      8 February 2012

Regulator to probe “cartel behaviour”

Switzerland’s Competition Commission has announced that it has launched an investigation into alleged “cartel behaviour” by a dozen of the world’s biggest financial institutions.

The banks are suspected of colluding to influence interest rates through manipulating “Libor” and “Tibor” - the London and Tokyo Interbank Offered Rates.

Libor and Tibor are based on central bank interest rates and determine the level of interest paid by participating banks on the London and Tokyo stock exchanges.

In turn this underlies many of the rates charged by commercial institutions on financial products such as mortgages.

“Derivative traders working for a number of financial institutions might have manipulated these submissions by co-ordinating their behaviour, thereby reducing these reference rates in their favour,” the commission stated.

It said it will also look into claims that they illegally influenced market conditions for derivatives based on the two rates. Libor alone is used as a benchmark for setting rates on financial products worth around US$350 trillion worldwide.

The country’s two largest banks, UBS and Credit Suisse, are among those under scrutiny - as are British-based giants Royal Bank of Scotland Group and HSBC Holdings and a range of foreign banks including JP Morgan Chase and Deutsche Bank.

The Swiss investigation follows similar action in other countries. In December Japan’s financial watchdog suspended trading activities at Japanese subsidiaries of US bank Citigroup and UBS.

US, EU and British regulators are currently investigating whether banks may have understated the rates at which they lend to each other to pull the wool over investors’ eyes during the 2008 financial crash.

Morning Star  

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