Fed Investigated FX Rigging Months Before Manipulation Was Exposed, Did Nothing
With the Bank of England recently denying any collusion with dealers to manipulate FX rates and exclaiming "it was not our job to go hunting for the rigging of markets," the WSJ reports that none other than that bastion of trust The Federal Reserve examined key FX benchmarks months before global regulators sounded alarms over the manipulations... but took no action.
The Federal Reserve examined a key foreign-exchange benchmark months before global regulators sounded the alarm about potential manipulation, but officials took no public action.
Today, that benchmark—the so-called WM/Reuters fix—is at the center of a burgeoning investigation into whether bank traders and others colluded to manipulate the $5.3-trillion-a-day currencies market. Roughly two dozen bank traders have been fired or suspended. Banks are bracing for potentially huge civil and criminal penalties.
Until earlier this year, the Fed has been absent from the long list of authorities publicly probing the situation.
The New York Fed's queries started around September 2012. At the time, the scandal over banks' attempted manipulation of the London interbank offered rate, or Libor, was in full swing. Barclays had admitted wrongdoing and reached a high-profile settlement with U.S. and British authorities, and UBS AG was nearing its own $1.5 billion settlement and guilty plea to U.S. criminal charges.
So the New York Fed set out to see how other benchmarks were set, according to a person familiar with the central bank's thinking. The WM/Reuters fix was one place they looked.
"In light of the focus on reference rates in other markets, we sought to better understand the various reference rates that exist in the FX market," a New York Fed spokeswoman said. "Accordingly the [Fed's foreign-exchange committee] undertook an effort to catalog commonly used rates."
"FRBNY representatives expressed a desire to gather more information about the range, type, and use of benchmarks in the foreign-exchange market," according to minutes from the meeting published on the Fed's website.
But - they did nothing...
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