Japanese banks are at the receiving end of scrutiny after Hideto Takata, a former derivative trader, accused the banks of keeping the Tokyo interbank lending rate (Tibor) artificially high. Takata, who is a renowned trader with work experience in various investment banks until 2008, made this accusation noting that deeper insight on the same would be available in a self-published book coming out this month.

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The 47 year old trader decided to raise the sweltering rate manipulation issue in sympathy for his friend and former UBS trader, Roger Darin. The U.S. Department of Justice charged Darin with conspiracy in relation to a yen Libor manipulation probe last year. As we had earlier noted in January, UBS has been vigorously working to root out the negative issues at the wake of Libor, in some cases dismissing workers.

According to the accusations, Japanese banks are operating in what Takata described as ‘cartels’. Takata argued that the banks were fixing loan prices, suppressing central bank efforts to enhance lending and impelling higher rates on borrowers. An agitated Takata further remarked that the Tibor rate was intentionally high in order to allow the banks to boost margins on domestic products like mortgages, most of which are linked to Tibor.

While Takata’s accusations are yet to be confirmed, Tibor rates have indeed been much higher than yen Libor rates ever since the outset of 2009. On paper, the two rates should be very similar because they are essentially used as a reference for borrowing in the same currency. Tibor’s current three-month premium is approximately 13 basis points above the Yen Libor. Since the outset of 2011, this range has remained relatively the same, ranging from 13 to 5 basis points.

Discrepancy between rates started post-financial crisis

Takata further argued that the stable state of the Japanese banking system did not merit the huge discrepancy between the Tibor and the Yen Libor. Credit market experts also agreed that the Tibor and the Yen Libor should be similar, citing that they had been similar for seven years straight before the 2007- 2008 crisis kicked in.

“If Japanese banks need to borrow, they use Libor. If they are lending, they use Tibor. No other country has a double standard like this,” remarked Takata, explaining how the alleged ‘cartel’ banks were maximizing on their margins through the discrepancy between the Tibor and the Yen Libor. To further cement his accusations, Takata said that the collusions between the banks were based on circumstantial evidence.

Rate manipulation scandals have since become common place in the banking place. If these accusations hold, they are bound to open a can of worms amid efforts by most banks to recover from the scandal.