Thursday, 5 March 2015

serious fraud? Just say 'No'

So now the Serious Fraud Office is apparently having a peek into the Bank of England to see what happened when extra liquidity was needed after Northern Rock's demise.

Prior to Quantitative Easing, which electronically printed huge sums of money, there was another scheme which electronically printed huge sums of money. The Special Liquidity Scheme was when the Bank auctioned a mere £185bn to some banks and building societies, in return for non-liquid unshiftable collateral of £287bn.

This cheap liquidity was supposed to be a rescue scheme, but there's hints that the money may have been loaned via some possibly skewed auction processes and cut price fees. At least one bank appears to have already paid a fine based on their SLS fee reductions. By paying the fine early, they managed to get a 30% discount from the FCA.

Naturally, any rigging would be frowned upon although LIBOR rate tweaks and banging the close on the forex fix are both topical examples where this has happened.

I suppose it's all about finding the choke points and, if so minded in a chatty place like the City, knowing how to manipulate them.

For LIBOR, it's about the way that money gets loaned to building societies and certain sized companies. For the forex fix, it's about setting global exchange rates once or twice a day before they all start to wander. For maintaining UK economic confidence its about the liquidity afforded to big banks.

Then it becomes about leverage. As something massive shifts slightly, how do vested interests pick up a piece?

Small shift in LIBOR = large bonus prospect.
Small discrepancy in forex fix = large daily profits and commissions.
Tweaked access to discounted money = vintage wine all round.

Chancellor Osborne is reported as saying he'll give a blank cheque to the SFO for their investigation. It'll be curious to know where the money used to pay it gets printed?

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