Market manipulation is rampant, the banks hold all the cards and whales routinely move prices in their favor. Oh, and that probably happens in crypto markets, too.
In the latest demonstration that crypto markets are child’s play compared to real financial manipulation, two major banks have settled lawsuits from investors alleging violations of anti-monopoly laws. JPMorgan Chase & Co, along with Citigroup, will pay a combined $182.5 million to settle accusations that they conspired to rig interbank interest rates, Yahoo Finance reports.
As is customary with legacy banks, the settlement terms allow for the banks to admit no guilt.
Three other banks have already reached settlements in the case, including $170 million by Deutsche Bank AG, $94 million by Barclays Plc and $45 million by HSBC Holdings Plc.
The suit was launched by a group of investors and pension funds, who claim that the banks collaborated to sway the Euribor benchmark between June 2005 and March 2011. Fixing the Euribor allowed the banks to manipulate the derivatives market and profit at investors’ expense.
The European Interbank Offered Rate, or Euribor, represents the market-wide cost of borrowing money in the wholesale Euro market, calculated by averaging their self-reported lending rates at 11 am each day.
Although notionally intended to reflect a fair market, the Euribor case has shown that it is fairly simple for the 23 member banks to collaborate behind-the-scenes and budge the market in their favor.
The Oldest Trick In The Book
This isn’t the first time banks have rigged the game against their borrowers. The LIBOR scandal, exposed in 2008, revealed that UK banks had been routinely misstating their borrowing costs in order to manipulate the London Interbank Offered Rate, a similar index to Euribor which is denominated in GBP.
Since many financial products rely upon Libor as a benchmark, manipulation of the LIBOR rate allowed bankers to tilt financial markets for student loans, mortgages and other products in their favor, including the $350 trillion US derivatives market. As the Financial Times reported in 2012, Libor manipulation has been common since at least 1991.
The scandal ended with billions of dollars in fines, and ended industry self-regulation over the LIBOR interest rates. The benchmark is now calculated under UK regulatory oversight.
The Euribor scandal comes nowhere near the scale of the manipulation of UK banks, but it does demonstrate how easy it is to pull the markets’ strings for years, right in front of the eyes of financial regulators.
The next time someone points out the puppetry of prices on Bitfinex or Kraken, it’s worth noting that they probably learned it from the professionals.
The author is invested in digital assets.