Banking Giants Settle Currency Manipulation Charges

Nov 12, 2014
Originally published on November 12, 2014 4:45 pm
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Six big banks will pay more than $4 billion to U.S. and European regulators for more bad behavior, this time rigging foreign currency markets. Among the charges? That currency traders at the banks collaborated in online chat rooms to cheat customers.

NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: The foreign currency market is massive. More than $5 trillion a day is traded to facilitate global commerce and satisfy investors. Today regulators from the U.S., the U.K. and Switzerland announced settlements that resolve allegations that traders from major banks manipulated the currency market for years to boost their bank's profits and their own pay. Three giant U.S. banks were among them - Citigroup, JPMorgan Chase and Bank of America. Three European-based banks were also involved - HSBC, Royal Bank of Scotland and UBS.

Aitan Goelman, director of the Division of Enforcement at the U.S. Commodity Futures Trading Commission, says the rigging of foreign exchange markets further damages confidence in the system.

AITAN GOELMAN: There has, you know, long been a sense in this country that the markets are rigged in favor of the big banks and against the little guy and when misconduct like this is uncovered, I think it serves to confirm those pre-existing suspicions.

YDSTIE: Goelman says the banks rigged the market by collaborating to manipulate the daily benchmark rate for currency trades that's set in London at 4 o'clock each day. It's called the World Market Reuters 4 o'clock fixing price.

Here's how they did it. Stanford University finance professor Darrell Duffy says suppose you're a U.S. car rental company that wants to buy a fleet of cars in Europe.

DARRELL DUFFY: I need euros to do it so I call my bank and I say, I'd like to buy 500 million euros today.

YDSTIE: And the trader is told, buy them at the 4 o'clock fixing price. Well, what the trader might do is buy euros well in advance of 4 o'clock and then he might go to an exclusive online chat room for big bank traders only.

DUFFY: You know, one trader would say to another, you know, my customers want to buy euros today, what about yours? The other trader would say, wow, mine want to buy euros too so let's really hit the market hard just before 4 o'clock, drive the price up and then our customers will have to pay more and we'll make money on it.

YDSTIE: The trader charges your car rental company the higher 4 o'clock price for the euros he bought earlier at a cheaper rate. His bank makes a bigger profit and the trader makes a bigger bonus. The CTFC's Goelman says traders and heads of trading desks were involved in the scheme.

GOELMAN: But, you know, we didn't see any evidence that it went up to the, you know, top executives of the banks.

YDSTIE: But the manipulation happened when banks were already being disciplined for the rigging of the benchmark Libor interest rate. That's one more piece of evidence that in-house bank monitoring of employee behavior remains too lax. Part of today's settlement requires stronger bank compliance activities and training. The U.S. Justice Department and the state of New York's regulators did not participate in this settlement, which suggests the banks may face additional punishment for their misdeeds.

John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.