Understanding the rate rigging scandal
<p>The Australian Securities and Investments Commission (ASIC) is taking legal action against three of Australia’s major banks (NAB, ANZ and Westpac) alleging that these financial institutions have engaged in unconscionable conduct and market manipulation.</p>
<p>ASIC contends that these banks have been manipulating the bank bill swap reference rate (BBSW), which is a reference point that’s used by banks when they lend to each other and is used to set interest rates and personal lending rates.</p>
<p><strong>What's happening?</strong></p>
<p>Prior to September 2013 the BBSW was set by Australian Financial Markets Association, which made its decision based on submissions from up to 14 banks, who would quote the interest rate they were paying and receiving at 10am each business day.</p>
<p>Well, at least that’s what they were supposed to be doing.</p>
<p>Instead, ASIC believes NAB, ANZ and Westpac were colluding to produce inaccurate data that could result in hundreds of millions of dollars in profits for the banks.</p>
<p><strong>Why should I care?</strong></p>
<p>Well, because the BBSW sets the benchmark rates on corporate loans, business loans, mortgages and credit cards, if traders were colluding to manipulate it, odds are you as a consumer had to foot the bill by having to pay higher interest rates.</p>
<p><strong>What is being done?</strong></p>
<p>Prompted by a similar scandal in the UK, ASIC has been investigating the potential of manipulation in Australia. ASIC has confirmed it will take legal action against NAB, ANZ and Westpac and may pursue fines in excess of $1 million.</p>
<p>Labor has called for a Royal Commission into the banking sector, while the Coalition says they’ve given ASIC more funding and powers to investigate misconduct.</p>
<p>So, as is often the case with issues like this, we’re just going to have to wait and see how it plays out. Still, it’s hardly an encouraging thought. </p>
<p>Were you aware of the rate-rigging scandal that’s taking place, and what do you make of it? Does this change your opinion of the big banks?</p>
<p>Share your thoughts in the comments. </p>
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