Mike Shedlock

Bank of England head Mark Carney faces a grilling from lawmakers tomorrow as Minutes Show Bank of England was Aware of Currency Rigging Eight Years Ago.

Bank of England Governor Mark Carney will face his toughest public testimony to date as he seeks to defend the integrity of an institution that’s become embroiled in the currency-manipulation scandal.

Lawmakers will grill Carney tomorrow after the BOE suspended an employee and released minutes of meetings showing officials knew of concerns the foreign-exchange market was being rigged almost eight years ago. The central bank said last week that an internal review has found no evidence so far that staff were involved in collusion.

It’s the second rigging scandal to hit the central bank following its entanglement in 2012 in the manipulation of the London interbank offered rate. Lawmakers criticized how it handled that affair, calling it naive.

“The statement on the internal review is only an early staging post in what is likely to develop into a very significant issue,” said Simon Hart, a lawyer at RPC LLP in London. “The statement left open as many questions as it answered. It was noticeably silent on what the Bank knew about other FX market participants.”

The testimony comes as regulators investigate allegations that traders at the world’s largest banks worked together to rig the $5.3 trillion-a-day foreign-exchange market. The U.S. Securities and Exchange Commission is investigating whether traders distorted prices for options and exchange-traded funds by rigging benchmark currency rates, according to two people with knowledge of the matter, Bloomberg News reported today.

More than 20 traders from banks including Deutsche Bank AG, Citigroup Inc. (C) and Barclays Plc (BARC) -- the three biggest currency traders, according to a May Euromoney survey -- have been fired, suspended or put on leave since Bloomberg News first reported in June that dealers said they shared information about client orders to manipulate foreign-exchange benchmark rates.

The suspended BOE employee, who hasn’t been named, is being investigated and “no decision has been taken on disciplinary action,” the central bank said on March 5.

According to minutes of meetings released alongside that statement, BOE officials knew of concerns the foreign-exchange market was being manipulated as early as July 2006, more than seven years before regulators opened formal probes. The minutes also show BOE officials discussed with traders concerns that currency benchmarks such as the WM/Reuters 4 p.m. London fix were being manipulated.

Foreign-exchange benchmarks like WM/Reuters are used to compute the day-to-day value of holdings and by index providers. Even small movements can affect the value of what Morningstar Inc. estimates is around $3.6 trillion in funds.

The allegations drag the BOE into another market-rigging scandal less than two years after it was criticized by politicians for failing to act on warnings that Libor was vulnerable to abuse.

Culture of Greed and Arrogance

Where are the criminal indictments? 20 people fired? Is this it? Are we to presume no one at the top of these organizations knew and approved of this rigging?

This is part of the overall culture of greed and arrogance fostered by central banks globally. No matter what the "too big to fail" banks do they are bailed out at taxpayer expense every time they get into trouble.

Bernanke stated his biggest mistake was letting Lehman fail. The records show Lehman, Citigroup, Bank of America, AIG, Fannie Mae, Freddie Mac and countless other financial institution "did" fail.

It was not a matter of "letting them fail" they already did. It was a matter of bailing them out, and Bernanke wanted to bail more of them out, including Lehman.

On top of it all, no one was held criminally responsible for the collapse in mortgage-backed securities, no one was held responsible in LIBOR rigging, no one has been held responsible for anything to date, and no one will be held responsible for currency rigging either.

To date, all we have seen is a series of fines coupled with high-fives when executives escaped serious charges no matter what any of them did.

Expect more "EH5s" executive high-fives when this too is swept under the rug.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.