Series : The banks and the “too big to jail” doctrine (part 5)

Big banks’ tampering with interest rates

12 June 2014 by Eric Toussaint

Fiddling with the LIBOR key interest rate

The extremely tolerant approach to the manipulation of interest rates by the governments of the main industrialised countries shows the extent to which the ’Too Big to Jail’ principle is applied. In 2010 the media revealed that a group of eighteen banks had been manipulating the London Interbank Offered Rate (LIBOR) from 2005 to 2010. LIBOR is a benchmark rate used for a market of $350 trillion, in assets and financial derivatives, which means it is the second most important benchmark rate in the world after the dollar exchange rate. The rate is based on information provided by eighteen banks about their funding costs in interbank markets. In 2012 evidence was provided of collusion among big banks such as UBS, Barclays, Rabobank, or Royal Bank of Scotland in order to manipulate LIBOR in their own interests.

Although steps were taken by oversight authorities all over the globe (US, UK, EU, Canada, Japan, Australia, Hong Kong), so far no penal prosecution against the banks has been filed and the fines have been ludicrously small compared with the amounts at stake [1]. Roughly, they reach a total of less than $10 billion and each banks’ share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. is minimal compared with the damage caused. The scandal resulted in the resignation of several bank CEOs, as was the case with Barclays (2nd British bank) and Rabobank (2nd Dutch bank), in the layoff of dozens of traders but significantly no banks lost the right to continue operating on the markets they conspired to rig, no CEO was jailed.

While the banks acknowledged the charge of manipulation and accepted the fines imposed by British law, US law responded with outrageous levity. On 29 March 2013 Naomi Buchwald, judge for the New York District, exempted the involved banks of any legal responsibility towards individuals or institutions that had suffered from the manipulation of the LIBOR LIBOR
London Interbank Offered Rate
An average rate calculated daily, based on transactions made by a group of representative banks. There are several LIBORs for some ten different currencies and some fifteen duration rates, from one day to twelve months.
 [2]. So as to protect banks from any sueing on the ground of collusion and monopolistic practices she argued that laws on competition do not apply to the LIBOR rate, so banks can agree on rates without violating the US antitrust laws. Since rates on the swaps and CDS CDS
Credit Default Swaps
Credit Default Swaps are an insurance that a financial company may purchase to protect itself against non payments.
markets are established in the same way – through averaging rates sent to participants, such a decision creates a dangerous precedent which opens the door to blatant manipulation by major financial institutions of key rates ruling global financial markets. In the US the LIBOR scandal went through a new development in March 2014 when the US Federal Deposit Insurance Corporation (FDIC) filed a law suit against over a dozen major banks (JP Morgan, Citigroup, Bank of America, UBS, Credit Suisse, HSBC, Royal Bank of Scotland, Lloyds, Barclays, Société Générale, Deutsche Bank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi UFJ,...) [3]. We shall see whether the case will also be dismissed or result in a fine without penal consequences.

In the context of the LIBOR scandal, the European Commission fined eight banks for a total amount of €1.7 billion for forming a cartel that manipulated the derivative market [4]. Four banks manipulated rates for derivatives Derivatives A family of financial products that includes mainly options, futures, swaps and their combinations, all related to other assets (shares, bonds, raw materials and commodities, interest rates, indices, etc.) from which they are by nature inseparable—options on shares, futures contracts on an index, etc. Their value depends on and is derived from (thus the name) that of these other assets. There are derivatives involving a firm commitment (currency futures, interest-rate or exchange swaps) and derivatives involving a conditional commitment (options, warrants, etc.). on the euro exchange market while six manipulated rates for derivatives on the yen exchange market. The logic of not actually prosecuting is again applied.

Moreover since the accused banks agreed on paying a fine, the amount was reduced by ten per cent. The fined banks were JP Morgan and Citigroup (1st and 3rd US banks), Deutsche Bank (1st German bank), Société Générale (3rd French bank), Royal Bank of Scotland (3rd British bank), and RP Martin. In return for informing on their colleagues , two banks, namely UBS (1st Swiss bank) and Barclays (2nd British bank), were exempted from paying the fine.

To sum up, we are back to medieval indulgences: ’Pay to redeem your sins and you can stay in the paradise of finance. Abjure your trespassings and snitch on the other thieves, then you can go without paying the indulgences, I mean the fines.’
In Australia the government went even further into the farcical: they scolded BNP Paribas for “potential misconduct’”(sic!) relating to Australian interbank interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
between 2007 and 2010. BNP Paribas laid off traders and promised AUD 1 million to promote financial literature [5]. What a joke!

Conclusion : We have to put a stop to unregulated markets, and prohibit speculation and derivatives. Banks must cover risks related to interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates with standard underwriting practices.

Translation : Christine Pagnoulle and Mike Krolikowski

Part 1
Part 2
Part 3
Part 4
Part 5
Part 6 Only in french
Part 7
Part 8
Part 9

Eric Toussaint, is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège. He is the President of CADTM Belgium (, and sits on the Scientific Council of ATTAC France. He is the co-author, with Damien Millet of Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He is the author of many essays including one on Jacques de Groote entitled Procès d’un homme exemplaire (The Trial of an Exemplary Man), Al Dante, Marseille, 2013, and wrote with Damien Millet, AAA. Audit Annulation Autre politique (Audit, Abolition, Alternative Politics), Le Seuil, Paris, 2012. See his Series “Banks versus the People: the Underside of a Rigged Game!”


[1Matt Taibbi, “Everything is rigged : The biggest price fixing scandal ever”, 25 April 2013, See also

[2The Wall Street Journal, “Judge dismisses antitrust claims in LIBOR suits”, 29 March 2013,

[3AFP, “Le scandale du Libor rebondit aux Etats-Unis (The LIBOR scandal rebounds in the US)”, 14 March 2014, (All sources in French only)

[4European Commission, “Antitrust : Commission fines banks € 1.71 billion for participating in cartels in the interest rate derivatives industry”, press release issued on 4 December 2013,

[5Financial Times, ’BNP Paribas sacks staff for interbank rate-fixing attempt’, 29 January 2014.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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