Well, no, at the Fool we’re not actually suggesting locking anyone up, but it’s what could have happened had new proposals been in force at the time of the Libor-fixing scandal!
The Bank of England, together with financial regulators and the government, have been meeting to decide how to deal with bad behaviour (sometimes outrageously bad) by the banks, and on the cards is the possibility of criminal penalties for the rigging of foreign exchange rates and interest rates, and other such market-rigging fraud.
Yes, they could be facing porridge!
Red-handed!
Barclays (LSE: BARC) (NYSE: BCS.US) was caught two years ago attempting to fix the London Interbank Offered Rate, or Libor. Banks are supposed to submit accurate reports of the actual interest rates they are paying to borrow from other international banks, but a 2012 investigation found Barclays and other member banks were reporting false figures so as to dishonestly profit from trades.
A report in the Financial Times in 2012 suggested that such rate manipulation had been going on since at least 1991!
The result was a £290m fine for Barclays, but many thought the bank got away with it very lightly. Barclays is on for around £4bn in pre-tax profit this year, and if we think about how many banks might have been involved in the scandal and for how long, the potential total value of the fraud could be staggeringly high. In fact, Swiss bank UBS was hit with a fine of $1.5bn for its part.
Extending legislation
The latest review is working on legislation to extend Libor regulation further into the foreign exchange, fixed income and commodity markets, with the move being welcomed by Bank of England governor Mark Carney — and there are few outside the fat-cat banking ranks who would disagree with him.
After all, manipulation of key banking measures in order to profit is effectively theft — those extra profits are taken dishonestly from other traders, and ultimately from ordinary shareholders like you and me.
If ordinary citizens are caught trying to fiddle their taxes, make bogus insurance claims, or defraud the benefits system, they can easily receive a custodial sentence — so why should cheating bankers who are fingering massively bigger sums not get the same treatment?
Why so long?
The real shame is that it has taken the UK’s lawmakers this long to get a grip on the seriously dodgy dealing that has clearly been going on amongst our banks for decades, and that it’s only now that Chancellor George Osborne has announced that he will deal with the abuses. I’m sure it’s just coincidence that there’s an election coming up next year.