Deutsche Bank announced today it had entered into a deferred prosecution agreement and paid a $2.5 billion fine.  Why?  Because it was manipulating the price of money.  Specifically, it manipulated interest rates so trades that it made produced much more favorable results for the bank.

In Transparency Games, there is a case study on how bankers rigged the financial markets in their favor by manipulating the interest rates underlying upwards of $450 trillion in financial securities.  These rates include Libor, Euribor and Tibor.  Each of these rates represents the average rate banks on the interest rate panel think they could borrow at on an unsecured basis.

What allowed the bankers to manipulate these rates is they are calculated in an opaque manner.  Rather than disclosing all the actual trades and using a subset to calculate the rates, the rates are based on easily gamed submissions where the banks are suppose to estimate in good faith what they would pay.

There is no surprise the bankers hiding behind a veil of opacity decided to rig the rates for their benefit.  What is surprising is it took financial regulators more than four years to respond after they first found out.

What isn’t surprising is the regulators opted for complex regulations and regulatory oversight rather than transparency when the tried to end the bankers rigging the rates for the bankers’ benefit.

As these rates are currently calculated with regulatory oversight, they would not qualify for a label from the Transparency Label Initiative™.  Hopefully, this will change prior to the labels being announced.