Scale of Libor manipulation hindered detection – watchdog chief
Regulators could not have spotted the "lowballing" of Libor interest rates during the financial crisis even if they had looked, Britain's Financial Services Authority said.
The watchdog's chairman, Adair Turner, told a parliamentary commission on banking standards yesterday it was much easier to see abuses in share trading by using computers.
Manipulation of the London interbank offered rate (Libor) during the 2008 crisis, for which three banks – Barclays, Royal Bank of Scotland and UBS – have been fined so far was far harder to see, he said.
"There was no information on the trader manipulation," Lord Turner told the commission. Libor is used to price trillions of dollars of financial products from derivatives to mortgages.
As markets went into meltdown following the collapse of Lehman Brothers in September 2008, some banks put in low submissions for rates at which they could borrow from other banks to give an impression they were sound.
The FSA's report into Libor rigging will be published next Tuesday.
It comes after questions from parliamentarians as to why the US Commodity Futures Trading Commission began probing possible rigging of the London-based Libor before the FSA.
Neither the FSA, the CFTC – two of the regulators that have fined the three banks – or other regulators had ways to see the trader manipulation, Turner said.
"We couldn't have got at it by intensive supervision. You just cannot have a police force big enough to spot these problems."
While whistleblowing was one of the few ways to report illegal activity, Lord Turner said trading-room mentality was detached from the real economy as some traders see their job in front of a screen as being like playing a computer game, asking "Why shouldn't I cheat?". (Reuters)