RBS and Barclays face yet another banking scandal

Barclays, Royal Bank of Scotland and HSBC were yesterday at the centre of yet another investigation by regulators, after European watchdogs said they were among 13 banks charged with shutting exchanges out of the lucrative credit derivatives market.

The European Commission said the banks acted to block two big exchanges, Germany's Deutsche Börse and the Chicago Mercantile Exchange, out of the credit-default swap (CDS) market. The turnover in CDSs is huge: so far this year, contracts worth £8.5 trillion have been traded.

Along with the two UK banks, the EC read out a roll call of the City's aristocracy as being part of its inquiry, including Goldman Sachs, Citigroup and JP Morgan. It also cited the data firm Markit and the International Swaps and Derivatives Association (ISDA).

All of those named could face heavy fines if the watchdog's findings are confirmed. European anti-trust regulators have the power to impose penalties of up to 10 per cent of a company's global turnover. So in the worst case, Barclays could face a fine of up to £3bn.

The inquiry covers the period 2006- 2009, when Bob Diamond was chief executive of Barclays. Fred Goodwin was running Royal Bank of Scotland for most of the period under scrutiny, until he was ousted as a consequence of the bank's multibillion-pound bailout in 2008. Michael Geoghegan and the former trade minister Stephen Green were at the controls of HSBC.

Credit-default swaps are a type of bet placed on the credit of a country or a company. They are usually arranged "over the counter" under the auspices of a City bank. They played an important role in the financial crisis as a number of institutions defaulted on loans, and the EU has been seeking to bring in tighter regulation and a more transparent process.

In a statement yesterday Joaquín Almunia, the EU's Competition Commissioner, said: "Exchange-trading of credit derivatives improves transparency and market stability. But the banks acted collectively to prevent this from happening. They delayed the emergence of exchange trading of these financial products because they feared that it would reduce their revenues. This, at least, is our preliminary conclusion. If confirmed, such behaviour would constitute a serious breach of our competition rules."

Mr Almunia gave a clear indication that if the case were proved, penalties could follow.

The banks and the two other organisations now have the opportunity to mount a defence. They have the option of requesting a hearing before commission officials and anti-trust experts ahead of the EC's final decision. Verdicts in such matters can take several years, but there was some speculation that in this case the EC may issue its final judgment before Mr Almunia leaves office towards the end of next year.

The other banks charged are Bank of America Merrill Lynch, BNP Paribas, Morgan Stanley, Credit Suisse, Deutsche Bank, Bear Stearns (now owned by JP) and UBS.

Swap shop: The 'casino' contracts

What is a credit-default swap?

It is a type of bet. One side offers insurance against a company or country going into "default" and failing to repay loans. The other receives a payout if this happens. They needn't have any connection with the company or country concerned, or their lenders.

Why are they important?

They are blamed for spreading contagion throughout the financial system during the global crisis when lots of institutions suddenly started to default on their loans.

Why is the EU unhappy?

CDSs happen behind closed doors. The EU wants them to be traded on exchanges, where a clearing house is responsible for ensuring trades go through in the event one side goes bust. It wants transparency. and some standardisation and transparency is brought to the process.

Life and Style
Arts and Entertainment
Up my street: The residents of the elegant Moray Place in Edinburgh's Georgian New Town
tvBBC's The Secret History of Our Streets reveals a fascinating window into Britain's past
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
Albus Dumbledore, the headmaster of Hogwarts School of Witchcraft and Wizardry has been the teaching profession's favourite teacher
ebookA unique anthology of reporting and analysis of a crucial period of history
Luis Suarez looks towards the crowd during the 2-1 victory over England
Life and Style
Cheesecake frozen yoghurt by Constance and Mathilde Lorenzi
food + drinkThink outside the cool box for this summer’s frozen treats
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Sir Bradley Wiggins removes his silver medal after the podium ceremony for the men’s 4,000m team pursuit in Glasgow yesterday
Commonwealth games Disappointment for Sir Bradley in team pursuit final as England are forced to settle for silver
Alistair Brownlee (right) celebrates with his gold medal after winning the men’s triathlon alongside brother Jonny (left), who got silver
England's Jodie Stimpson won the women’s triathlon in the morning
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Research Analyst - Recruitment Resourcer

£18000 - £20000 per annum + OTE £25K: SThree: SThree Group has been well estab...

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform