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Why MAS Reprimanded 20 Banks, and What It Means for You

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Ryan Ong

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The Monetary Authority of Singapore (MAS) has reprimanded 20 banks for trying to manipulate SIBOR, SOR, and Forex spot exchange rates. Heh, top bankers; they can’t have a three second talk at the urinals without ending in a conspiracy against the public. Here’s a quick announcement on how it might affect you (if at all):

 

SIBOR, SOR, and Forex Spot Exchange Rates: What Are They?

The Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR) are used to determine the interest rate on various bank loans, most notably housing loans.  For more information on SIBOR or SOR rates and home loans, see our previous articles.

The Forex spot exchange rate is the amount you’d pay to buy another currency (like going to a money changer).

The reprimanded banks attempted to alter these rates in their favour, through…

 

Questionable Rate Setting

In the same way companies can form price fixing cartels, banks can collaborate to fix interest rates. That’s why the rate-setting processes of banks are closely monitored.

The last thing we need, for example, is for every bank to jointly decide to skyrocket SIBOR rates. Imagine if every bank decided to double your home loan rates, and also agreed not to undercut each other. As a home buyer, you’d have to accept the increase; because you have no choice but to pick one of them.

MAS seems to think 20 banks, 17 of them local and 3 foreign, could have been trying to do just that. In all, some 133 traders were rounded up and (we like to think) yelled at in a room filled with meat hooks and iron maidens. Or just sorely reprimanded. According to reports, three quarters of the involved traders have either resigned or been fired.

 

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“And from this line on, the auditor basically just wrote swear words.”

 

How It Might Affect You

MAS’ punishment is to make the guilty banks park huge sums of money with the government.

Three of the banks (ING, UBS, Royal Bank of Scotland) have had to set aside over a $1 billion. OCBC has to set aside between $700 – $800 million, and most others are setting aside $100 million – $600 million. I haven’t seen that many zeroes since my high school exams.

This isn’t the same as having the money confiscated. It just means the banks can’t loan out that money. That means less business for them, since banks need to give out loans to earn interest.

The potential consequence here is squeezed liquidity.

When banks cannot give out more loans, their solution is often to raise interest on existing loans. So your loan interest rates may go up, in the interests of preventing the banks from…uh…driving loan rates up. I’ll let the irony sink in.

Another potential consequence is that banks get more selective. They may, for example, lower the amount you can borrow for different loans.

If you’re in the market to buy a home or are looking to refinance, you should use the MoneySmart Home Loan Wizard to see the latest home loan rates before deciding on which loan to take. Their Mortgage Specialists will help you compare and get approvals from the necessary banks so you don’t have all the paperwork to deal with too.

MAS is also pressing for a tighter regulatory framework. We’ll have to wait and see what these are, before we can predict the effects.

 

Image Credits:
erwinkarimDave Dugdale

How do you think this incident will affect banks and their policies? Comment and let us know!

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Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.