The Australian Financial Review is reporting that the Australian Securities and Investments Commission is “on the verge of launching legal action against ANZ Banking Group amid a massive industry-wide investigation into manipulation of the bank bill swap rate (BBSW)”. A sequential investigation into the big four banks is being conducted and it will have many bank CEOs nervous about the outcome.
A court case would be a bombshell for the banking industry, potentially implicating around a dozen banks and, if a prosecution was successful, result in massive penalties.
BBSW is the benchmark by which hundreds of other market rates are set. In simplistic terms, a small increase in the rate increases costs for tens of thousands of borrowers and potentially increases bank profitability. A corporate borrower, for example, might borrow money from a bank at BBSW plus a margin of, say 200 basis points (or 2.00%). With BBSW currently at around 2.30% this means the total interest rate cost on the loan is 4.30%. The loan rate is re-set each quarter at the then-BBSW rate. An explanation of the BBSW rate-setting process can be found here.
In November 2014 YieldReport reported that ANZ had suspended “seven staff involved in markets trading”. ASIC had been investigating the 14 member BBSW panel since mid-2012 following similar investigations by UK regulators into the main London interbank offer rate setting, LIBOR.