BERLIN (Reuters) - German parliamentarians questioned Deutsche Bank’s DBKGn.DE compliance chief Stephan Leithner and former board member Hugo Baenziger on Wednesday over how banks including the German lender manipulated global benchmark interest rates.
The London interbank offered rate (Libor), which is used to price billions of dollars worth of financial contracts, was put under the spotlight in June when UK and U.S. authorities fined British bank Barclays BARC.L a record $450 million for manipulating rates during the credit crunch.
Deutsche Bank is cooperating with investigations in the United States and Europe over the setting of rates between 2005 and 2011. It said in July an internal probe found that no members of the management board behaved inappropriately.
But the bank said two of its former traders may have been involved in colluding to manipulate global interest rates.
The German lawmakers are widely expected to press Leithner and Baenziger on details of the individuals involved, including how senior they were, and what sort of payoff they received.
They had hoped to question Deutsche’s co-Chief Executive Anshu Jain, a former head of investment banking, but the bank decided to send board member Leithner in his place, sparking criticism from Jain’s former boss, Josef Ackermann. The hearing was due to start about 6:30 EDT.
The probe will likely strain the already tense relationship between bankers, who prefer to keep out of the public eye, and politicians, who are eager to demonstrate their grip on the risk-hungry world of global finance.
Germany’s Bundesbank has urged Berlin’s lawmakers not to interfere in efforts to overhaul a system for setting global benchmark interest rates, a filing to the parliamentary hearing in Berlin showed.
In a letter addressed to Birgit Reinemund, the Free Democrat (FDP) head of the lower house’s Finance Committee, Bundesbank board member Andreas Dombret said the choice of which benchmark rate to use should remain a matter for markets to decide.
“Any change to a different reference interest rate should be a matter of free choice for markets and not imposed through lawmakers,” the letter said.
Libor remains in use as a reference for pricing billions of dollars worth of debt across the globe. Because Libor remains so entrenched in financial markets, regulators are working on ways to reform, rather than replace Libor.
Libor rates submitted by banks are compiled by Thomson Reuters TRI.TO, parent company of Reuters, on behalf of the British Bankers’ Association.
Regulators fear that Libor remains vulnerable to manipulation as banks are asked to submit only a hypothetical estimate about their expected borrowing rate, rather than disclosing the actual prices of completed transactions.
Because Libor is so widely used, coming up with alternative benchmark interest rates can only be a medium to long-term goal, Buba’s Dombret said.
He also said in his filing to the committee that benchmark rates should take greater account of actual transactions, rather relying only on estimates.
Reporting By Edward Taylor; Editing by Elaine Hardcastle