Sunday, 15 July 2012

Fear and Trembling - the US Justice Department is building a prosecution to hold bankers to account for LIBOR fixing

According to the New York Times, the US Justice department’s criminal division is preparing cases against several financial institutions and their employees. And yes, that means Barclays and its traders. Indictments could come later this year.

The newspaper also reported that UBS could be next to receive the Barclays treatment. The Swiss bank is the next "target for regulatory action". In the coming weeks, we should expect an explosion of early retirements of senior bank officials, along with lost bonuses and a snowstorm of contrite press releases.

It is early days, but the LIBOR fixing scandal could be the one that finally brings the whole rotten edifice down. In London, the news that the Justice Department are now on the chase has gone down badly. Although the crime was committed here, UK regulators have been slow to pursue the matter .The reluctance is understandable. There is growing evidence that UK officials had at least some knowledge that banks were misbehaving. But they did nothing. This scandalous inactivity may prove to be the final ignominious epitaph for the UK Financial Services Agency.

The crime may have been committed here, but victims are worldwide. US victims have every right to seek redress through the US Justice system. LIBOR determines the borrowing costs for trillions of dollars of US financial products, including mortgages, credit cards and student loans. Many US investors would have had to pay more due to Banks manipulating LIBOR to squeeze out extra trading profits. Already US cities, states and municipal agencies are lawyering up. Some have filed suits.

The scandal raises the intriguing question whether bankers will be extradited to America for crimes committed here. With one eye on the implications of US warrants issued for UK residents, the authorities here in the UK may wish to accelerate their own investigations. That way they could legally entangle loose-lipped British bankers before they get to New York, where they will be offered plea-bargains in return for accusing other more senior banking staff. Who knows, perhaps some British regulators or even politicians could be named.

Bankers went too far with this one. The LIBOR scandal was nothing more than an insider trading scam, run on a global level. Hubris got the better of financial institutions. Bankers thought that they could operate under different rules. They thought they could twist and manipulate interest rates for private gain. There was, however, no thought given as to how their greedy and dishonest schemes would impact the rest of the world. It was as if the rest of us didn't exist or matter.

The US Justice Department may be about to change the rules. It is time for fear and trembling in London's financial institutions.


Sackerson said...

You mean, the US is prepared to bring foreigners to justice. I'd suggest all Barclays execs have to do is get American passports.

Honolulu real estate said...
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AC said...

Cool, I'd love to see Mervyn King in an orange jump suit and leg irons ?

Lionel said...

Mervyn wouldn't be high on my list. Fred the Shred first, then Diamond, and work down the list.

Dublin Lizzy said...

There is a long list of Irish bankers that should be included.

Sackerson said...

Or does Lionel mean Shred the Fed?

Anonymous said...

More banker trouble,,,

Nick Drew said...

they do these things so much better in the USA


only the clear prospect of gaol deters nice middle-class banksters