Another massive bank fiasco involving the full cast of TBTF banks, this time for Credit Default Swaps. Where is the boundary of fiascos?

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I’m a bit slow on the uptake sometime. There is an entirely new, huge banking mess that I hadn’t heard about before the billion dollar settlement was announced. Another small fiasco is rumored.

Another day, another couple billion out of the stockholders’ pocket.

First the nearly $2B private settlement.

Twelve banks agreed to settle a private antitrust lawsuit. The now-admitted scheme was to manipulate credit default swap rates. Those are deals to cover the loss if a bond defaults.

How the $1.865B settlement will be split amongst the big banks hasn’t been announced.

The players include the full roster of too-big-to-fail/jail/manage/regulate banks:

  • Bank of America
  • Barclays
  • BNP Paribas
  • Citigroup
  • Credit Suisse
  • Deutsche Bank
  • Goldman Sachs
  • HSBC
  • J.P. Morgan Chase
  • Morgan Stanley
  • Royal Bank of Scotland
  • UBS

The WSJ article below says various regulators in the US and Europe have not reached any settlements on this issue. I will make a completely wild guess there will be a few billion more by the time the regulators are done.

Where is the boundary of banking fiascos?

For more info, check out the following:

About the other rumored fiasco:

9/1 – Francine McKenna at MarketWatch – Deutsche Bank reportedly under investigation for emerging markets currency manipulation – Word is leaking out confidentially that the Justice Department is looking at some of the big banks, specifically Deutsche Bank at the moment, to figure out if there is some manipulation of the Russian ruble, Brazilian real, and the Argentinian peso.

Am I correct to infer the TBTF/J/R/M banks didn’t stop with manipulating Libor, Forex, ISDAfix, commodities, and CDSs? They also worked on the ruble, real, and peso?

In auditing we have a concept of putting a fence around something. When there is an auditing issue, you look beyond the current known exceptions to find where the boundary is. When you have a fence around the issue (exceptions are only in this month, or this department, or this product line) you can get some comfort that the issue doesn’t affect every transaction. Then you can sort out and quantify the problem transactions. Without a boundary, the potential errors are unlimited.

Where is the fence around the TBTF banks manipulating trades? Is there anything that we know they weren’t tinkering with?

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