One Reason We Need Bank Regulation in the US

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Matt Levine comments on the Citibank fines for Libor manipulation.

 

Senior Yen Trader: i think after june I will push for higher libors and lower tibors after june imm we are joining fixing panel in tibor and will keep it high [. . .]
Deutsche Yen Trader: after june coolio
Senior Yen Trader: after june higher lib is ok for you? [. . .] I selling june ey will keep tibor high at least till june for year end I will need low tibor and high l;ibor

Coolio is new, but otherwise it’s even a familiar cast of characters: The main villain in the CFTC order is “Senior Yen Trader,” whom Citi hired in the fall of 2009 because, in a Citi manager’s words, “this guy has forty percent of the market, and he knows where all the fixes are, he knows everybody on the street, he’s a real fuzzy animal, this guy owns it,” only he didn’t say “fuzzy.” Senior Yen Trader seems to be Tom Hayes, whom you may remember from the UBS Libor settlements, and the interdealer brokerLibor settlements, and from being sentenced to 11 years in prison for manipulating yen Libor at UBS before manipulating it at Citi.

The one real novelty may be the chats and e-mails between Libor submitters and “salespeople in other funding units of the bank” about how Citi shouldn’t borrow at rates above Libor.

I just wanted to try to understand the level [ …] the level at which they were paying was quite higher than LIBOR and we as an institution have to be a little be careful about what rates we show in the market since we’re LIBOR setters[…] we monitor quite heavily what different Citi branches pay in the interbank bank market, and the reason is here in London we set the LIBORs, and the CFTC in the ‘States have been very sharp on institutions that set LIBORs […] you were paying in the market quite higher in the market than compared to where I would set LIBOR which kind of ties my hands a little bit so I’m trying to work out what you’re trying to do, [ …].

If Citi had submitted a high Libor, that would have undermined confidence and made it hard for it to get short-term unsecured funding. So its Libor submitters begged its funding salespeople not to get short-term unsecured funding. It’s a real privileging of form over substance.