A $612 Million Strike Back in Rate-Rigging Scandal on Mortgages, Student Loans, Credit Cards

NEW YORK (MainStreet) — The global investigation into the manipulation of interest rates has led to a third major bank facing significant fines and worldwide embarrassment.

Britain's Royal Bank of Scotland, parent company of Citizens Bank, was fined £390 million Wednesday, or $612 million, for rigging the London Interbank Offered Rate, commonly known as Libor. Investigators found that RBS traders in London, Singapore and Tokyo manipulated Libor from at least 2006 until 2010.

RBS was bailed out during the financial crisis of 2008 and is now 81% owned by the British government. So the fines will be paid back by cutting the recent and future bonuses given to the bank's management and employees.

In June, British bank Barclays was fined $450 million by U.S. and British regulators for its role in the scandal. In December, Swiss bank UBS agreed to pay $1.5 billion in fines for its part in manipulating Libor and other benchmark interest rates.

Regulators continue to investigate whether banks rigged interest rates to gain more profits or perhaps reported lower interest rates on loans to appear more financially stable. A rigged Libor rate means millions of people around the world might have unknowingly paid more or less interest than they should have on their mortgages, student loans and credit cards.

The name London Interbank Offered Rate is geographically misleading. It is simply the interest rate banks around the world charge to lend to each other. It is computed in London but used as a global benchmark for interest rates, and, according to some analysts, has affected more than $360 trillion in financial products.

Libor reflects the borrowing costs of 18 banks, including firms in Europe and Japan as well as three American institutions: Bank of America, Citigroup and JPMorgan Chase. A daily survey in London calculates Libor by averaging the rates these banks think they would have to pay to borrow from other banks. The banks, not the market or the government, set the rate.

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