Holding Bankers to Account: A Decade of Market Manipulation, Regulatory Failures and Regulatory Reforms.

• Author: Zuluaga, Diego

Holding Bankers to Account: A Decade of Market Manipulation, Regulatory Failures and Regulatory Reforms

Oonagh McDonald

Manchester, UK: Manchester University Press, 2019, 288 pp.

How could a small clique of derivatives traders manipulate some of the world's most important financial benchmarks for their own enrichment? In general, global capital markets are much too liquid, competitive, and integrated for any individual participant to materially alter outcomes. Opportunities to gain a sure profit from market inefficiencies are hard to come by and quick to disappear.

Yet, starting in 2008, evidence that prominent banks were rigging the London Interbank Offered Rate (LIBOR) began to surface, potentially affecting financial contracts worth hundreds of trillions of dollars. Subsequent investigations by British and American regulators confirmed these suspicions and revealed additional manipulation of the markets for foreign exchange and precious metals, ushering in large fines and considerable new regulation. The scandal has had long-term implications, with the main LIBOR watchdog now encouraging financial institutions to use alternative reference interest rates.

The collusion between banks that enabled this manipulation, and the regulatory response, are the subject of Holding Bankers to Account, a forensic new treatment by Oonagh McDonald. McDonald is a veteran of financial regulation who has authored books on the failure of government-sponsored mortgage giants Fannie Mae and Freddie Mac, as well as the collapse of Lehman Brothers. From 1993 to 1998, she served as a director of the Securities and Investments Board, the agency then overseeing Britain's capital markets.

Despite her insider status, McDonald does not avoid discussing the regulatory failures that enabled market manipulation. Painstakingly, she documents how traders and other bank staff worked together to rig reference rates for their own gain, and how regulators procrastinated as evidence of malfeasance accumulated. Her tone, however, is dispassionate and removed, leaving the reader to decide how to allocate the blame.

Most books on the LIBOR scandal have tended to focus on the personalities of the people involved, notably Tom Hayes, the erratic Londoner who as a yen trader for UBS and Citigroup made millions for himself and his employers by recruiting brokers and other traders to get the benchmark where he wanted it. McDonald's is decidedly not one of those books. She rarely...