By Pam Martens: July 9, 2012

The big money to be made from cheating on Libor was from exchange traded interest rate contracts and over-the-counter interest rate swaps.  According to the Office of the Comptroller of the Currency, as of March 31, 2012, U.S. banks held $183.7 trillion in interest rate contracts.  Just four firms represent 93% of total derivative holdings: JPMorgan Chase, Citibank,  Bank of America and Goldman Sachs.  

A criminal investigation by the Canadian Competition Bureau into the rigging of Libor has implicated JPMorgan Bank Canada, Citibank Canada, HSBC Bank Canada, Deutsche Bank AG, and the Royal Bank of Scotland N.V. (RBS).  UBS is cooperating with the probe and providing documents.

The Bureau’s demand for production of documents at each of the banks suggest that their derivative traders used emails and instant messaging to communicate artificially high or low bids to the bank’s staff who were submitting rate information for inclusion in the Libor calculations. Instead of a Chinese Wall that is supposed to separate proprietary trading from confidential activities, the proprietary traders appear to be not just privy to the confidential information but generating it.  This is certain to revive debate on the Volcker Rule here in the U.S. – the still unimplemented part of the Dodd-Frank financial reform legislation that would restrict gambling for the house at Wall Street firms.

An affidavit from Brian Elliott, a law officer with the Canadian Competition Bureau, named specific traders who were alleged to have participated in the scheme, suggesting it had hard evidence to make the claims.

The Bureau’s court filing called the alleged Libor rigging an international conspiracy and said it is cooperating with foreign jurisdictions.