How is it that base interest rates such as Libor are legal in the first place? Interest rates are prices, after all, and whenever an entire industry works together to set prices that they use in common, it is never far removed from price-fixing.
The reason a base rate may be considered legitimate is that base rates are intended as a neutral, transparent economic measure that doesn’t reflect the business plans or management decisions of any one business organization. Of course, this is possible only if the banks that have input into the base rate aren’t getting together to negotiate ways to manipulate the process based on their business objectives. That would be considered collusion, and the resulting base rate would be illegal to use.
As we now know, there was a lot of that going on between 2005 and 2012. Essentially every day, bankers exchanged messages with colleagues at other banks to decide on trading strategies and agree on false data to feed into base rates. Many of these messages were recovered from the banks’ email systems and reviewed by investigators. There is little room left to imagine that industry base rates were being created in a way that lived up to the spirit of the antitrust laws, which prohibit collusion in setting prices.
The result, this week, is one of the largest antitrust assessments in EU history, €1.7 billion against Deutsche Bank and four other banks. The banks were cited mainly for operating a Euribor cartel between 2005 and 2007. UBS and Barclays also participated in the cartel and might have been fined €3.2 billion but for their early cooperation in the investigation. The fines cover other offenses that continued almost up to the present.
A bankruptcy court approved the bankruptcy of Detroit, dismissing various challenges to the filing. The court ruled that protections for creditors didn’t create an ability to pay on the part of the city.