Deutsche Bank Fined $2.5 bln for Interest Rate Benchmarks Manipulation

Superintendent of Financial Services Benjamin M. Lawsky, announced today that Deutsche Bank will part with $2.5 billion to settle litigation costs related to manipulation of various interest rate benchmarks.

This is the biggest LIBOR investigations related fine to date, and surpasses Swiss bank’s Credit Suisse record. Besides installing an independent monitor for New York Banking Law violations, the largest German investment bank will also have to terminate and ban certain employees.

The $2.5 billion total is distributed among a number of global regulators

The benchmark interest rates which the fines are related to include the London Interbank Offered Bank (LIBOR), the Euro Interbank Offered Rate (EURIBOR) and Euroyen Tokyo Interbank Offered Rate (TIBOR).

The $2.5 billion total is distributed among a number of global regulators. Deutsche Bank will pay $600 million to the New York State Department of Financial Services (NYDFS), $800 million to the U.S. Commodities Futures Trading Commission (CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term), $775 million to the U.S. Department of Justice (DOJ) and £227 million (approximately $340 million) to the United Kingdom’s Financial Conduct Authority (FCA) Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol Read this Term).

Commenting on the announcement Superintendent Lawsky said, “Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain. While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system.”

“We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals,” he added.

The FCA fine, which is the U.K. regulator’s largest ever for LIBOR and EURIBOR-related misconduct has been exacerbated as Deutsche Bank tried to mislead the regulator, which could have hampered its investigation.

Investigation Findings

According to the findings from investigations between 2005 and 2009, Deutsche Bank traders frequently requested that certain submissions of rate contributions that would benefit the traders’ positions, rather than the rates that complied with IBOR definitions.

For example, on February 21, 2005, a trader requested a colleague who performed submitter duties on a back-up basis, "Can we have a high 6mth LIBOR today please?" The trader/submitter agreed, "Sure dude, where?" The trader replied, "Think it [should] be 095?" The trader/submitter replied, "Cool, was going 9, so 9.5 it is."

Euroyen TIBOR isn’t really reflective of actual money market condition in Japan… people just randomly make those numbers up.

Deutsche Bank employees also communicated and coordinated with employees of other banks and financial institutions. On September 7, 2006, a London desk head attempted to obtain a low EURIBOR submission from an external banker at Barclays, to which he replied, "I told them 1 m up is that right?"

The London desk head continued, "Please pal, insist as much as you can… my treasury is taking it to the sky… we have to counter balance it… "

On August 21, 2008, a vice president wrote to an external banker employed at Merrill Lynch, "Tibor going down or not?" The external banker replied, "Slightly but not much… euroyen TIBOR isn’t really reflective of actual money market condition in Japan… people just randomly make those numbers up."

On July 16, 2009, a managing director and the Head of the London Money Market Derivatives desk discussed the strength and accuracy of the Euro LIBOR panel in comparison to the EURIBOR panel. He asked, "U think the quality of the euro-libor panel is 4.5bps better than euribor?" The Head of the London Money Market Derivatives desk responded yes, and the managing director replied, "I have a hard time [believing] so many banks say they can [do] better than the market while they are a part of it."

One Greek says: "All Greeks are lying" who do you trust?

As the Head of the London Money Market Derivatives desk stated, "They're all lying anyway." The managing director replied, "There is a philosophical saying: ‘one Greek says: "all Greeks are lying" who do you trust?"