Search Results for: libor

Let’s keep an eye on the role of regulators in the LIBOR fiasco

In addition to the now-denied wink and nudge from Paul Tucker to Barclays that their LIBOR rates didn’t need to always be so high, the New York Fed was told repeatedly of the possible problems with LIBOR.

The Washington Post’s article, In 2007, New York Fed was told about problems with Libor, summarizes the communication from Barclays to the NY Fed.

The picture is starting to emerge on the severity of LIBOR scandal

The Economist has a very depressing article that describes the range and depth of the LIBOR disaster: The rotten heart of finance.  If you are following LIBOR scandal, you will really want to read this article. Be forewarned it makes for sad reading.

There are two different ways LIBOR rates have been manipulated.

First is a longer running and less severe manipulation. For number of years, at least since 2008, perhaps as long ago as 2005, and perhaps even earlier, the article says traders inside the banks have been moving the rate a little bit. Second is a larger amount of movement for a shorter period of time. This took place during the financial crisis of 2008 in order to understate borrowing costs.

Who suffers from playing games with LIBOR?

Earlier post discussed the blooming scandal over LIBOR rates.

Short version – Barclays has admitted it underreported borrowing costs which in turn affected the LIBOR rate, which is the base for calculating the interest rate on many loans.

The populist-type comments I’ve seen so far suggest that consumers are being ripped off. 

I don’t think so. Consumers aren’t the ones who suffer.  Here’s why:

Might be time to start paying attention to the LIBOR scandal

The fiasco over calculating LIBOR is a bit complicated, but it might be time to start paying attention.

The story is manipulation of LIBOR, a key interest-rate benchmark. Barclays Bank is one of the biggest banks in England. During the economic crisis in 2008, Barclays was underreporting their borrowing costs, which in turn artificially pulled down LIBOR.

So what?

This is a big deal because of the way LIBOR is calculated and how it is used.

Another multi-billion fine for Wells Fargo – $3.7 billion this time.

Image courtesy of Adobe Stock.

Been a while since I tuned into the shenanigans at Wells Fargo. A mere 100 million here and another 100 million there just doesn’t break into the headlines. Well this time is 3.7 billion. Yeah, billion with a B.

12/20/22 – Wall Street Journal Wells Fargo to Pay Record CFPB Fine to Settle Allegations It Harmed Customers – Wells was able to combine a variety of violations into one big settlement. They closed out a number of investigations with this multibillion settlement.

Range of issues includes “illegally assessed” fees and interest on car loans and home loans. Overdraft fees were improperly applied. Some vehicles were repossessed as a result of the shenanigans. Overdraft fees replied even though there is enough money to cover the transactions.

Settlement consists of $2 billion restitution and a $1.7 billion fine from CFPB, which is a record for the agency.

Brief overview of new accounting rules for 12/31/21 financial statements.

Image courtesy of Adobe Stock.

To help auditors in the CPA community, the AIPCA peer review staff publishes PR Prompts, a newsletter with information for firms providing audits, review, compilations, and other attestation services.

The newsletter is unbranded and AICPA gives explicit permission to peer reviewers to put their logo and branding information on the newsletter. Those of us who are peer reviewers have specific permission to send it to our clients.

The following comments are provided to you courtesy of the AICPA.  I gratefully acknowledge their work in preparing this info and gladly share it with you. 

For ease of reading, I will not put all the following material in quotations.

One section of the newsletter provides background on new accounting rules that will be required in the near term:

PR Prompts – Fall 2021:

Upcoming accounting standards updates (ASUs) not-for-profits (NFPs) should be familiar with at the end of 2021

The following is a summary of FASB ASUs with initial effective dates for most NFPs beginning in calendar-year 2021 and for 2020-2021 fiscal year-ends, or with effective dates that were deferred to 2021. Also, summarized are ASUs on the horizon with effective dates for most NFPs in 2022 and later. Additional information and guidance related to a number of these ASUs can be found in this AICPA article.

Recap of fines for major banking fiascos.

Image doing that to seventy billion dollars. Intentionally. Image courtesy of Adobe Stock.

It is so sad to say, but a reality never-the-less, there are so many major banking fiascos with such a wide range of willing participants that it is impossible to keep straight the players and disasters and fines based just on memory.

So, that means I have a spreadsheet to track the willful disasters I’ve been following.

My tally does not include all the billions of dollars paid to settle mortgage issues arising from the Great Recession. That is another massive set of disasters all by itself.

Here is my running tally of the amount of stockholder equity wasted for a range of different debacles. Amounts in millions of dollars:

Getting caught up on the cost of big bank fiascos – part 2

Interior of Concord stage coach, Three people sat on each of the two benches round the clock, for many days, getting out to stretch their legs and grab a bite to eat only during a swap of horses. Photo at Wells Fargo’s San Diego museum by James Ulvog.

Previous post mentioned I’ve fallen far behind on covering the fines and penalties on the big banks for their massive fiascos.

Here is a list of some messes happening since I was last discussing their messes:

11/19/18 – Reuters – Société Generale to pay $1.4 billion to settle cases in the US – French bank agreed to $1.34B fine for laundering money to Cuba and other countries on the prohibited list. Paid an additional $95M other anti-money laundering violations.

Ripple effects spread out from Wells Fargo fake account fiasco

Concord stagecoach painted in Wells Fargo colors, housed at the Seeley Stable Museum Hazard Collection in Old Town San Diego Historic Park. April 2012 photo by James Ulvog.
Concord stagecoach painted in Wells Fargo colors, housed at the Seeley Stable Museum in Old Town San Diego Historic Park. April 2012 photo by James Ulvog.

Unlike nudging Libor or Forex rates, it is easy to grasp that it is wrong to open bank accounts without a customer’s permission. The ease of understanding the mess is why I think the Wells Fargo fiasco is growing rapidly.

Here’s my free tip of the day on how not to handle a crisis: don’t blame it on the employees who got fired for breaking the rules to meet sales quotes set by management. That is the current strategy of the CEO:

9/13 (in print edition on 9/14) – Emily Glazer (have seen her name a lot on this story) and Christina Rexrode at Wall Street Journal – Wells Fargo CEO Defends Bank Culture, Lays Blame With Bad Employees – In an interview with WSJ reporters on Tuesday, the CEO blamed the whole mess on misbehaving employees.  He insisted there were not any incentives to improperly open accounts.

In the same interview, he indicated the bank will end its sales quotas for customer-facing staff.

Followup on Wells Fargo opening accounts without customer permission

Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.
Wells Fargo Concord stagecoach. April 2012 photo by James Ulvog.

When the leading article from the Wall Street Journal mentioned earlier was placed on the front page of the print edition, the headline of

 Wells Fargo Fined for Sales Scam

was in type 0.4 inches tall. Yes, I measured it.

That is the largest font I recall seeing on the front page in a long time. Maybe I don’t pay enough attention to font size, but still, that is the largest headline I recall lately. Isn’t quite the way you want to get your name on the front page of the Journal.

Here’s another article from the WSJ and a discussion from Rumbi Bwerinofa. Also, a study that quantifies the damage caused to senior executives earnings from the stigma gained by having a scandal-tainted company on their resumes.

9/9 – Emily Glazer at Wall Street Journal – Next Test for Wells Fargo: Its Reputation – The fiasco of opening accounts in customers’ names without their permission is a story that could cause reputational damage. Article says analysts are concerned and bank execs are worried how much this will damage earnings.

Difference with this mess from other banking fiascos is that this one is easy to explain and easy to understand.

A few convictions of traders. Several walk.

Photo courtesy of Adobe Stock
Photo courtesy of Adobe Stock

An ongoing challenge for law enforcement in pursuing charges against bankers is actually getting convictions at trial. Even manipulating Libor is a tough sell to juries.

For those who wanted to see bunches of bankers in prison stripes, keep in mind there is that hurdle of persuading a jury a crime was committed. It may be difficult, but is possible to do.

7/4 – Bloomberg – Guilty Ex-Barclays Trio Ends Another Libor Chapter for London – …

News on regulatory oversight; insider trading, livings wills, manipulating interest rates.

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Interesting news from the financial world:

  • How NASDAQ watches for insider trading
  • Why bank regulators not disclosing the criteria for evaluating “living wills” causes more systemic financial risk
  • Enforcement efforts on two interest-rate manipulation fiascos

Here is how you get caught for trading on inside information

6/10 – Francine McKenna at MarketWatch – How NASDAQ watches for insider trading – Deep background on how NASDAQ monitors all the trading in the market for suspicious activity. They have a variety of tools and techniques to identify anomalies and drill down to eventually reach the individual trades.

Updates on banking fiascos

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

A few articles that have caught my eye on varied aspects of the overall range of banking fiascos in play:

4/14 – New York Times – How Regulators Mess With Bankers’ Minds, and Why That’s Good News the previous week was that many of the huge banks failed their ‘living will’ test. Each bank that is labeled as having ‘systemic risk’ must submit for approval a plan on how they would wind down in the event of failure. The purpose is to show they would not take down the entire financial system.

This article points out the banks were not told what their living will should contain or what it should look like.

As an expected result, likely intentional, the banks’ plans failed the test. When you don’t know how the test will be scored, or even what will be on the test, you are unlikely to pass. Sort of like having to turn in a term paper without know what topic the professor will select.

Again, this article thinks it is wonderful that the banks are evaluated on criteria that are not disclosed to them.

More trouble for prosecutors actually getting a conviction against bankers

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Prosecutors in England failed in their efforts to convict six brokers of fixing Libor rates.

1/27 – Wall Street Journal – Six Ex-Brokers Acquitted of LIBOR Rigging in London – One key person was convicted at trial a while back and is now in prison. The six brokers just acquitted are the people he was supposedly conspiring with. Only the 6 weren’t conspiring with anyone about anything, according to the jury.

How’s this for a brazen money laundering scheme? We can add another item to the list of at least $16 billion of fines for money laundering.

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

Check out this plan for evading money laundering rules. Oh, it came with a money back guarantee to clients whose money was being laundered. Also, I’ve accumulated a preliminary list of industry-wide fines for getting caught busting those AML rules.

11/26 – CNN – Barclays fined $109 million for trying to hide “the deal of the century” – Staff at Barclays came up with a creative plan to hide clients’ money. The staff processed US$2.8B of deposits from “politically exposed people”, meaning people with significant political power and ability to do bad stuff to generate personal wealth.

Commission for the bank was £52M (US$77M).

According to the article, this scheme involved merely performing an Internet search to verify the source of funds as asserted by the clients, did not enter clients’ names on the internal computer systems which meant compliance staff would never find out who owned the money, and used quickly opened & closed offshore accounts to move the money.