(CN) - Deutche Bank has been fined a record $2.5 billion by regulators in the United States and Great Britain who claim it manipulated benchmarks used to set interest rates on everything from mortgages to credit cards.
The previous record fine was $1.5 billion paid to regulators by the Swiss bank UBS in 2012.
The $2.5 billion penalty levied against Deutsche Bank includes $600 million to be paid to the New York State Department of Financial Services, $800 million to the Commodities Futures Trading Commission, $775 million to the U.S. Department of Justice, and £227 million (about $340 million) to the United Kingdom's Financial Conduct Authority.
The bank also agreed to terminate and ban individual employees who engaged in misconduct, and install an independent monitor for New York Banking Law violations in connection with the manipulation of the benchmark interest rates, including the London Interbank Offered Bank, the Euro Interbank Offered Rate and Euroyen Tokyo Interbank Offered Rate.
"Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain," said Benjamin Lawsky, New York State's Superintendent of Financial Services, in a written statement.
"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," Lawsky said.
The London Interbank Offered Rate is a benchmark interest rate used in financial markets around the world. It is the primary benchmark for short term interest rates globally, written into standard derivative and loan documentation, used for a range of retail products, such as mortgages and student loans, and the basis for settlement of interest rate contracts on many of the world's major futures and options exchanges. It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates.
From approximately 2005 through 2009, the government entities said, certain Deutsche Bank traders frequently requested that certain submitters submit rate contributions that would benefit the traders' trading positions, rather than the rates that complied with the IBOR definitions.
As an example, they pointed to a February 21, 2005 exchange in which one trader requested another, "can we have a high 6mth libor today pls gezzer?"
The trader/submitter agreed.
"Sure dude, where wld you like it mate?"
The trader replied, "think it shud be 095?"
The trader/submitter replied, "cool, was going 9, so 9.5 it is."
The trader then joked, "super - don't get that level of flexibility when [the usual submitter] is in the chair fyg!"
Similarly, the authorities said, on December 29, 2006 a trader wrote to a submitter, "Come on 32 on 1. Mth... Cu my frd."
The submitter agreed.
"ok will try to give you a belated Christmas present...!" he said.
The regulators said Deutsche Bank also communicated and coordinated with employees of other banks and financial institutions regarding their respective rate contributions in advance of an IBOR submission.
