U.S. and British regulators announced a $612 million settlement Wednesday with Royal Bank of Scotland, with the global bank acknowledging that it had manipulated key benchmark interest rates to benefit its trading positions in unregulated markets.
The action against the bank by the U.S. Commodity Futures Trading Commission brought the penalties it's levied against global banks in the ongoing scandal over the manipulation of interest rates to $1.2 billion. Royal Bank of Scotland agreed Wednesday to pay the commission $325 million, the Justice Department $150 million and Britain's Financial Services Authority $137.1 million. Global banks have now paid the Justice Department more than $810 million in the investigation.
As part of the settlement, the bank's subsidiary RBS Securities Japan Limited pleaded guilty to a single charge of wire fraud with intent to defraud counterparties. The British government owns 80 percent of Royal Bank of Scotland, taking its stake in a rescue of the bank during the global financial crisis.
What made Wednesday's settlement stand out was titillating instant-message traffic secured by the enforcement staff at the Commodity Futures Trading Commission.
In one message that involved the trading of Swiss francs, a trader seeks a manipulated rate and coos, "If u did that I would come over there and make love to you."
The messages show brazen market fixing and no remorse over manipulative behavior in financial markets. They also show that the bank had traders and employees who submitted its interest rates working together on the same desk.
"That's a smack in the face of market integrity," David Meister, the commission's director of enforcement, told McClatchy.
The probe grew out of a scandal that first involved Britain's Barclays PLC, which admitted last June that its traders had manipulated what's known as the London Interbank Offered Rate, or Libor, a benchmark interest rate collectively set by 18 global banks in London and used as a reference for trillions of dollars in loans across the globe in 10 major currencies.
Barclays agreed to penalties from U.S. and British regulators of about $450 million. The Swiss bank UBS settled with U.S., British and Swiss regulators in December for $1.5 billion.
Three American banks - Bank of America, Citibank and JPMorgan Chase - take part in setting the dollar-denominated Libor rate, an average of interest rates that's the primary benchmark for short-term interest rates around the world. They haven't faced charges, and regulators wouldn't say whether they're under investigation. But Assistant Attorney General Lanny Breuer made it clear in a statement Wednesday that the industry probe continues.
"These are extraordinary results, and our investigation is far from finished. Our message is clear: No financial institution is above the law," he said.
The manipulation involved driving the Libor rate up or down, depending on a bank's position in bets made in what's called the over-the-counter market. Those unregulated markets trade in complex financial products called derivatives. The 2010 revamp of U.S. financial regulations called for this trading to come into the light, but the implementation has been slow and complicated.
Libor rates were widely used before the U.S. financial crisis of 2008, which was brought on by problems in the housing sector, to determine the interest rates to which adjustable-rate mortgages - many of them given to the weakest borrowers - would jump after the expiration of low teaser rates.
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