EU: Big Banks Colluded on Interest RatesAdam Gardiner
More than five years after opening its investigation, last month European Union authorities fined leading international financial institutions Crédit Agricole, HSBC and JPMorgan Chase 485 million euros (about $520 million) for anti-trust violations they determined took place from 2005 through 2008.
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This capped a multi-year investigation by the European Commission, the EU’s enforcement arm, into allegations that several banks had conspired to fix benchmark European interest rates, including the euro interbank offered rate, commonly known as Euribor. This is the benchmark rate at which the euro, a currency used by 337.5 million EU citizens as well as businesses throughout the world, is lent between banks.
In 2013, reports the Wall Street Journal, the Commission “found that traders at seven banks, including Crédit Agricole, HSBC and JPMorgan Chase, were involved in a cartel between September 2005 and May 2008 to improperly influence the pricing of euro interest rate derivatives.”
Shining a Light on Years of Misconduct
In 2013 the EU fined the involved banks a total of €1.7 billion, the largest such penalty to that time. But unlike the other banks involved in the investigation, Crédit Agricole, HSBC and JPMorgan Chase refused to settle, leading to December’s decision and massive fines.
To determine the Euribor banks, supposedly independently, disclose the interest rates at which they’ve decided they will loan euros to other financial institutions. According to EU authorities, the seven accused banks conspired via online chat rooms and instant messaging services to improperly share the rates they intended to submit for the Euribor, as well as other sensitive financial information, allowing them to act as a cartel and thus profit from diminished competition.
So far, the three banks fined in December are denying any wrongdoing and vowing to fight the EU penalties, with JPMorgan Chase, which received the biggest share of the fines, insisting, “We did not engage in any wrongdoing with respect to the Euribor benchmark. We will continue to vigorously defend our position against these allegations, including through possible appeals to the European courts.”
European Interest Rates and You
While corruption among banks is sadly hardly news, the question is how does a European banking scandal impact Americans? The answer is unclear. The London Interbank Offered Rate, known as the Libor, is the rate used here in the U.S. to determine mortgage rates. In 2012 Barclays Bank admitted manipulating that rate, and other institutions were implicated in fixing the Libor as well.
Though your mortgage may not be tied to the Euribor, if you have investments in multinational firms improper influence on euro lending rates may impact you. Moreover, many the banks involved in the rate-fixing are household names in the U.S., including HSBC, JPMorgan Chase and Citigroup—one or several of which can probably be found on credit cards in your wallet.
It’s one more lesson, particularly after the recent Wells Fargo fraud debacles, that Americans need to look hard, twice, at the institutions they’re trusting with their cash today, and their financial security down the line.