The report this week that UBS, the Swiss bank, may be close to a deal with American and British authorities to settle charges that its employees manipulated interest rates to increase the bank's trading profits signals incremental progress in the global investigation into rate rigging at more than a dozen big banks, including Citigroup, JPMorgan Chase and Deutsche Bank. What it does not signal — at least not yet — is that regulators, prosecutors and political leaders are using the investigation to hold banks and bankers truly accountable for the magnitude of the wrongdoing. The rates in question, including Libor, the London interbank offered rate, are used to determine interest rates on trillions of dollars of loans and are linked to other transactions estimated at hundreds of trillions of dollars worldwide. By rigging the rates, the banks rigged the system against borrowers, consumers and investors everywhere.
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UBS is expected to pay more than $450 million, following on the $450 million settlement agreed to earlier this year by Barclays, the British bank, to resolve similar charges. At this stage, the UBS settlement — like the Barclays deal — appears to be focused on civil, not criminal charges. Barclays escaped criminal prosecution in part because it was the first to cooperate in the investigation. The Justice Department left open the possibility of criminally prosecuting officers or employees of Barclays, but it has not yet done so.
UBS has reached a conditional immunity deal with the antitrust arm of the Justice Department, though the department's criminal unit could still take action against the bank. Unless civil penalties are paired with high profile criminal prosecutions, they will not add up to meaningful punishment or effective deterrence.
There is little indication that the authorities will learn the right lesson from the rate-rigging scandal. Most of the discussion has centered on reforming the system for setting Libor and other rates. That is obviously needed. But these cases also show, once again, how big banks are driven to recklessness and even illegal conduct by the pursuit of trading profits, to the detriment of bank soundness and the public interest. So far, there have been only fledgling attempts by American and European politicians and regulators to curb and isolate excessive speculation, which means that even if Libor is made less susceptible to manipulation, behemoth banks still pose a danger to the broader economy.
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