LIBOR trial, first step in U.S. cracking down on financial manipulation
Last week, Anthony Allen and Anthony Conti became the first two people to be tried for manipulating the London Interbank Offer Rate (LIBOR) rate in the United States. LIBOR is the interest rate that banks charge each other for short term loans. Allen and Conti, who both worked for the Dutch firm, Rabobank, pled not guilty.
LIBOR is the standard from which all other interest rates are based. By manipulating this rate, a trader will not only affect the interest rate banks charge each other, but they can also make changes to the interest rates on mortgages, student loans, and just about every debt instrument imaginable. The process behind how banks calculate this rate came under scrutiny after the 2008 financial crisis. Since then, financial institutions have paid billions of dollars in penalties for rate rigging.
Ex-Rabobank traders face first U.S. trial over Libor manipulation http://t.co/X0p7eeKizh
— Reuters Business (@ReutersBiz) October 12, 2015
The key pieces of evidence against traders accused of manipulating rates are the documented email chains and chat room conversations which contain incriminating conversations. According to the New York Times, emails threads between Allen, Conti, and other traders show these bank employees discussing where they want rates to be set.
This is the next in a series of trials against traders and brokers at large financial institutions who have been accused of manipulating interest rates for the personal benefit of themselves, their co-workers, and their friends. Another British trader, Tom Hayes, was just sentenced to 14 years in prison by a London court. Hayes worked for Citigroup Inc. and cooperated with authorities as much as possible to avoid being extradited to the United States.
Does the financial system have enough regulation to prevent rate manipulation in the future? How can financial institutions regain the faith of the public after so many scandals? Feel free to leave a comment or find me on Twitter @Andrew_Morse4