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Details in Deutsche Bank’s Libor Settlement Point to Acute Cultural Flaws
Deutsche Bank has found a new form of Libor shame. The firm, Germany’s biggest bank, agreed on Thursday to pay a record $2.5 billion in a settlement of rate-rigging misdeeds with three United States authorities and the Financial Conduct Authority of Britain. On top of the manipulation, it misled the British regulator.
Part of the reason for the high sum — two-thirds more than UBS’s previous record for Libor issues — is the time it took Deutsche Bank to provide evidence. Over the last three years, fines have inflated for rate-rigging as well as other offenses.
Not all the foot-dragging was intentional. A big part was played by the bank’s staggeringly decrepit systems, the subject of previous admonishment from American regulators. The F.C.A. says Deutsche Bank’s antiquated audio platform stopped it from providing timely or comprehensive recordings of its traders.
More problematic, Deutsche ended up destroying 482 tapes of phone calls that the F.C.A. had requested. Luckily for the bank, the British regulator says this action was accidental, not willful, though the bank also provided inaccurate information about whether other records were available.
Other parts of the allegations just seem bizarre. Deutsche Bank was unable to say which traders had executed given trades — curious for a bank whose traders tend to equate their own social status with their daily profit and loss. Then, there is its late decision to hire outside help to process the forensic requests for data. Unsurprisingly, that accelerated the review of what Deutsche Bank says was 21 million electronic documents and 320,000 audio files.
Either way, Deutsche Bank’s worst sin is clear. It claimed to the F.C.A. in September 2013 that it was unable to share a preliminary report by the German regulator BaFin into its role in interbank rate-rigging — despite internal legal advice days earlier that no such restriction existed.
At separate times, a compliance officer and a senior manager also misled the British Bankers’ Association, the nonregulatory body responsible for Libor-setting, by falsely claiming that Deutsche’s Libor submissions had been audited and that it had never colluded to fix rates.
This all adds up to acute cultural flaws. A coming fine for potential currency market manipulation could underscore these failings, or add new ones. The bank’s forthcoming strategy review isn’t the only renewal that Deutsche Bank needs.
Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
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