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article imageOp-Ed: Global banks are rate rigging in Singapore

By Monty Spivak     Jun 23, 2013 in Business
The Monetary Authority of Singapore censured banks for trying to rig benchmark interest rates. Many important, global banks are involved, but the consequences are insignificant.
The Monetary Authority of Singapore censured banks for trying to rig benchmark interest rates and ordered them to set aside about S$12 billion (the exchange rate is around $0.80 Singapore Dollar per U.S. Dollar) at zero interest pending measures to improve internal controls. Although this was barely mentioned by the press in North America, this made the business news for newspapers and television across Asia.
The investigation covered SIBOR (the Singapore Interbank Offered Rate), which is the Singapore equivalent of LIBOR. Both are a collection of rates set by their respective Banking Association panels and used as benchmark pricing for securities worth trillions of dollars globally. The other main benchmark which was manipulated is the Swap Offer Rate (SOR). SIBOR and SOR are used for pricing commercial lending and for foreign exchange. They drive the pricing of mortgage and other types of loans in Singapore. For example, the average mortgage rates are about 70 basis points above SIBOR, according to Maybank Kim Eng Holdings Ltd.
Again, we see illegal activities - in this instance, systematic price-fixing - from some of the largest global banks. My previous article identified the banks which manipulated LIBOR and were involved in money laundering; no surprises, there is a high degree of correlation across the list of culprits. Singapore identified 20 banks that allowed 133 traders to manipulate interest rates and foreign exchange benchmarks during a four-year period. Although The Monetary Authority of Singapore (MAS) stated that they found no evidence of criminal behavior during a year-long investigation (triggered by the LIBOR rigging scandal), they concluded that traders had made several attempts to influence prices inappropriately between 2007 and 2011.
"Although the number of traders involved represents a small proportion of the trading community in Singapore, MAS takes a serious view of the need to uphold high standards of integrity in the industry and expects banks to foster a culture of ethical conduct among all their employees," the central bank said in a statement.
MAS also found that there were flaws in the banks' governance and surveillance systems involved in their benchmark submissions. The conclusions seems to be watered-down. How could there have been 133 rogue traders from 20 banks? How could management have not been fully engaged in what appears to be an enormous fraud on every Singaporean with a loan or mortgage? MAS limited its position to stating that the banks were guilty of failing to supervise their submissions to the panels that set the benchmarks.
Perhaps ironically, this is less than one year since the chairman of the Association of Banks in Singapore (ABS) had publicly asserted that the process used to set interest rates is prudent and sound. Mr. Piyush Gupta, who was also chief executive of DBS Bank at the time, stated at an ABS event: "I personally do not expect anything materially detrimental to come out of the review process." Deutsche Bank is implicated in the SIBOR scandal, so he must have believed that DBS could have avoided any serious consequences.
Singapore's worst offenders (and the associated penalties) were:
1. Royal Bank of Scotland (RBS)
2. UBS (UBS)
3. ING (ING)
Those 3 banks have been ordered to increase their reserves on deposit with the central bank by 1 billion to 1.2 billion Singapore Dollars (SGD) at a zero interest rate for one year.
The next three:
4. Bank of America (BAC)
5. BNP Paribas (BNPQF)
6. Overseas-Chinese Banking Corporation (OVCHY.PK)
were also ordered to increase their reserves at MAS by $700 million to $800 million Singapore Dollars (SGD).
The others, including:
7. Barclays (BCS)
8. Credit Suisse (CS)
9. Deutsche Bank (DB)
10. Standard Chartered (SCBFF.PK)
11. Citibank (C)
12. HSBC (HBC)
13. JPMorgan Chase (JPM)
14. Both Macquarie and ANZ (ANZY.PK) were part of a group of banks identified by the MAS. The document said Macquarie was not a contributing bank to the setting of benchmark interest rates, which are administered by the Association of Banks in Singapore.
This last group came away with smaller penalties.
In a near-zero interest rate world, retaining zero-interest deposits does not seem consequential. Let's do the math. The top 3 offenders need to retain deposits of about $1 billion U.S. Dollars (USD) at no interest. Perhaps their funding cost is 2%, so they are collectively losing $20 million USD, or about $7 million for each of the 3 biggest perpetrators. The Royal Bank of Scotland has a market capitalization of about $27 billion USD, so the $7 million penalty is a pittance for rigging a country's interest rates for 4 years.
MAS said about 75% of the traders involved had resigned or been asked to leave their banks, and the remainder would be disciplined by way of transfer to another job, demotion or loss of bonuses. With the traders as scapegoats, one can surmise that nothing happened to at least some of the 20 bank senior executives who likely orchestrated and perpetuated this fraud. International regulators are currently working on plans for new global standards governing the setting of benchmarks and are expected to publish draft proposals as early as next month - unless management is prosecuted for crimes under something like global racketeering legislation, this will probably not be very useful.
Singaporeans seem frustrated by these crimes and the weak MAS consequences. Some sample comments include:
Without jail time, it's just the cost of doing business. If my biggest downside is just losing my bonus, I'm still incentivized to keep pushing the envelope and hope I don't get caught... (LukeVA)
You may as well fun all financial institutions from behind bars as they are all crooked and all dodge prison by settlement after settlement which is a tiny slice of what they stole or they wouldn't continue trying to do it all over again. (alphadeus)
It seems that there is a cross-over of banks involved in the LIBOR and SIBOR rate rigging, and money laundering (the table is in order of SIBOR-scandal banks, which are sequenced by the size of the MAS deposit increases). I also identified the specific bank names used in the reporting of each scandal (and provide the U.S. ticker symbol):
Cross-reference banks involved in 3 global scandals
Cross-reference banks involved in 3 global scandals
Clearly, the "winners" of the overall corruption contest - with entries in all 3 columns - are JPMorgan, Bank of America, and HSBC, with 8 other banks occupying second place! That said, these 3 top-place banks did not occupy the leading positions in the SIBOR scandal, so perhaps one can generalize that illegal activities are common within the global banking sector, and that this industry needs to be more effectively policed.
It is disappointing that authorities in the developed countries are not taking more assertive actions to promote trust in our financial institutions. There appear to be only marginal consequences for illegal and corrupt activities in Singapore, U.S., and Europe. We are uncovering systematic swindles around the world, and it seems to be embedded in the culture of our largest and most important global banks.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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