Late last week, the Monetary Authority of Singapore (MAS) announced that as a part of its review of the Singapore Interbank Offered Rates (SIBOR) and Swap Offered Rates (SOR) over 2007-2011, it found 133 instances in which traders at 20 banking giants tried to rig benchmark submissions.  The financial regulator promptly asked the banks to deposit additional reserves with it, with each bank having to deposit an amount between S$100 million to S$1.2 billion (~$80 million to $1 billion) based on the extent of its involvement in the wrongdoing. The banks will get their respective amounts back without any interest after a year – the interest lost essentially representing the fines for the banks. The banks are also required to tighten the “deficiencies in the governance, risk management, internal controls, and surveillance systems” to ensure that their employees cannot game the process for short-term benefits.
The MAS handed out the fines to banks by placing each of them in one of four groups – with ING, RBS (NYSE:RBS) and UBS (NYSE:UBS) asked to part with the most cash. Bank of America (NYSE:BAC), Barclays (NYSE:BCS), Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), Citibank (NYSE:C) and JPMorgan (NYSE:JPM) also figure on the list of banks fined in this manner.
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The sweeping list of fines announced by the MAS over manipulation of the SIBOR comes as a part of the series of investigations initiated by financial regulators across the world, in the wake of the LIBOR manipulation scandal. As the benchmark rates are used to price loans as well as investment products, rigging them has a direct or indirect impact on financial transactions worth trillions of dollars – which is why the whole issue has been taken up so seriously by financial watchdogs.
The list of banks that have been punished by the MAS, and the effective losses for them as estimated by us are shown in the table below: 
|Bank||Additional Reserves (S$)||Additional Reserves ($)||Implied Fine ($)|
|1,000 – 1,200 mil||800 – 1,000 mil||2.1 – 2.6 mil|
|Bank of America
|700 – 800 mil||550 – 650 mil||1.4 – 1.7 mil|
|400 – 600 mil||300 – 500 mil||0.8 – 1.3 mil|
Bank of Tokyo-Mitsubishi
|100 – 300 mil||80 – 250 mil||0.2 – 0.7 mil|
The additional reserve that each bank has to place with the MAS has been arrived at by using the current SGD-USD exchange rate and then rounding it off as appropriate. The implied fine figure is obtained by considering the fact that each of these banks could earn interest at least equal to the yield on Singapore government securities maturing in a year, which is currently 0.26%. As the banks will not be getting any interest on the cash the MAS has demanded, the lost interest revenue becomes the fine they incur. And using this admittedly conservative method, we estimate that the total fines the MAS will collect in the process is about $22 million.
Clearly, the maximum effective fines of less than $3 million for even the banks most at fault doesn’t come close to what the very same banks settled with U.K. and U.S. authorities over LIBOR manipulation charges (see UBS Settles Libor Manipulation Charges At A Whopping $1.5 Billion and RBS Foots $612 Million Bill To Settle LIBOR Manipulation Charges). After all, the SIBOR has minimum impact on financial markets outside Singapore, compared to the globally used LIBOR benchmark rates.
But more important than these fines are the operational changes the MAS mandates for the banks to ensure that such rate rigging does not happen in the future. What remains to be seen is how effective the fine and the directive are towards achieving this objective.Notes:
- MAS Proposes Regulatory Framework for Financial Benchmarks, MAS Website, Jun 15 2013 [↩]
- Annex for MAS Press Release, MAS Website, Jun 15 2013 [↩]