Barclays bank ex-trader guilty of euribor interest rate rigging

by Ike Obudulu Last updated on April 2nd, 2019,

A former Barclays bank trader has been found guilty of conspiring to rig the Euribor global interest rate. Anglo-Italian Carlo Palombo, who denied the charges, will be sentenced later.

His heavily pregnant wife burst into tears in the public gallery after the verdict.

Mr Palombo, 40, was the eighth banker to have been convicted on Euribor rate rigging charges in Britain in a series of prosecutions brought by the Serious Fraud Office (SFO).

Co-defendant Sisse Bohart, a 41-year-old Dane who also once worked at Barclays, was acquitted at Southwark Crown Court.

The jury has yet to reach a decision on a third defendant, former Barclays banker Colin Bermingham, a 62-year-old Briton.

Euribor is a key euro benchmark borrowing rate, underpinning about $150 trillion (£113 trillion) of financial products, and the accuracy of the rate is important to maintaining trust in the financial system.

The defendants were charged with dishonestly manipulating the rate for their own benefit between 2005 and 2009.

The SFO sought a retrial of the three former Barclays traders after the jury failed to reach a verdict in July 2018.

At the time, two former Euribor traders were given jail time. Former Deutsche Bank employee Christian Bittar was sentenced to five years and four months.

Philippe Moryoussef, a former Barclays trader, was sentenced to eight years but he remains in France after fleeing the UK last summer. He was tried in absentia.

Brussels-based Euribor, like its Libor counterpart, reflects the cost of borrowing between banks and is set after submitters at a panel of major lenders report their estimated costs of borrowing over various periods to an administrator, who calculates an average.

Prosecutors alleged that the bankers manipulated Euribor by nudging them up or down to benefit trading positions, deliberately ignoring rules that they should be set independently.

All the former bankers denied any dishonesty, saying they followed instructions and acted openly.

Ten bankers have been acquitted of the SFO charges.

So far 11 powerful banks and brokerages have been fined a total of $9bn to settle rate-rigging allegations in a global investigation.

Barclays paid a $453m fine in 2012, sparking a backlash that forced out former chief executive Bob Diamond and prompted an overhaul of UK rate-setting rules.

What is Euribor?

Euribor is short for Euro Interbank Offered Rate. The Euribor rates are based on the interest rates at which a a panel of European banks borrow funds from one another. In the calculation, the highest and lowest 15% of all the quotes collected are eliminated. The remaining rates will be averaged and rounded to three decimal places. Euribor is determined and published at about 11:00 am each day, Central European Time.
When Euribor is being mentioned it is often referred to as THE Euribor, like there’s only 1 Euribor interest rate. This is not correct, since there are in fact 5 different Euribor rates, all with different maturities (until november 1st 2013, there were 15 maturities). See current Euribor rates for an overview of all rates.

History of Euribor

Euribor was first published on 30 December 1998 (value 4 January 1999). 1 January 1999 was the day that the Euro as a currency was introduced. In the years before, a lot of domestic reference rates like PIBOR (France) and Fibor (Germany) existed.

What determines level of the Euribor interest rates?

Since the Euribor rates are based upon agreements between many European banks, the level of the rates is determined by supply and demand in the first place. However there are some external factors, like economic growth and inflation (for more information on inflation see: inflation.eu) which do influence the level of the rates as well.

Why is Euribor important?

The Euribor rates are important because these rates provide the basis for the price or interest rate of all kinds of financial products, like interest rate swaps, interest rate futures, saving accounts (see: Euribor and savings) and mortgages.

Which are the European panel banks?

The panel banks are the banks with the highest volume of business in the euro zone money markets. The panel consists of banks with a first class credit standing, high ethical standards and an excellent reputation. For the full list of all the panel banks, click here.

Euribor and LIBOR

Euribor and LIBOR are comparable base rates. Euribor is the average interbank interest rate at which European banks are prepared to lend to one another. LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. Just like Euribor, LIBOR comes in different maturities. The main difference is that LIBOR rates come in different currencies. We would like to refer to current LIBOR interest rates and background information on LIBOR, in case you are interested in additional information on LIBOR.

Savings and Euribor

Euribor is the interest rate at which a large number of European banks do provide short term loans to one another. Banks which borrow money from other banks can use these funds to provide loans to other parties. In fact, Euribor is the purchase price a bank does have to pay for a short term loan.

Banks do have other ways to acquire funds: by offering savings accounts for example. Someone saving money by opening a savings account with a savings bank does actually lend money to a bank.
Interest rates on savings accounts and Euribor

For 2 reasons the level of the Euribor-rate and the interest rate offered on a savings account are strongly interrelated in many European countries. Panel banks (see “What is Euribor”) do have the possibility to borrow money from other banks (at the Euribor rate) or from private individuals. The interest rate offered to those which hold a savings account is in many cases lower than the Euribor rate. The difference is what can be called “margin for the bank”. When the Euribor rate decreases, the margin the bank makes is decreasing as well. That’s why banks often do decide to lower the interest rate on savings accounts when the Euribor rate decreases and vice versa. However this does often happen at a delay: the interest rate offered by many banks on savings is only altered when there has been a interest market change of some magnitude.

In general Euribor is in many European countries a good indicator of the movement of interest rates on savings accounts.

ECB refinancing or minimum bid rate

The European Central Bank (ECB) is taking care of the monetary policy of the Euro-zone (countries which do use the Euro) since 1999. The ECB did however not take over from the Central Banks (like the Bank of England), but does cooperate with them. One of the main tasks of the ECB is safeguarding price stability in the Euro-zone. The objective is to keep inflation below a rate of 2% a year.

ECB-refinancing-rate

The main refinancing rate or minimum bid rate is the interest rate which banks do have to pay when they borrow money from the ECB. Banks do so when they are short on liquidities.
There is a strong response of interbank interest rates (like the Euribor) to changes in the ECB refinancing rate. This does imply that the ECB interest rate can can be used as a tool to influence market interest rates.

Eonia

Eonia is short for Euro OverNight Index Average. The Eonia rate is the 1-day interbank interest rate for the Euro zone. In other words, it is the rate at which banks provide loans to each other with a duration of 1 day. Therefore Eonia can be considered as the 1 day Euribor rate.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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