Euribor developer says it was ‘natural’ for banks to consider their commercial interests in rate submissions
A senior executive responsible for developing the Euro Interbank Offered Rate (Euribor), which became the centre of a rigging scandal, has said it was "just natural" for traders to take into account their banks' commercial interests when submitting rates into the market.
Helmut Konrad, a former president of the ACI in Germany who helped draft the Euribor code of conduct, told Southwark crown court via videolink that it would be "naive" to think that two banks with different liquidity needs would submit the same rates.
"Just imagine one bank which has desperately to borrow €12bn, and the other bank which has to let go of €13bn, it would be naive to think that both banks would submit the same rate," he said.
Konrad said the steering committee he was a member of expected there to be a variety of rates submitted by the banks, and that the banks had not been instructed on how they should do so. "It would be in vain to instruct banks on how they should submit rates," he said. "There was no instruction to the banks."
Konrad has been called on as a witness in the trial against five former traders Sisse Bohart, Carlo Palombo, Colin Bermingham and Philippe Moryoussef – all of whom used to work at Barclays – and Deutsche Bank employee Achim Kraemer, who have been charged with fraudulently rigging the Euribor rate for commercial gain.
Moryoussef has decided not to attend the trial.
The Serious Fraud Office (SFO) has accused them of submitting higher or lower rates depending on the "deals on his book", thereby "manipulating" the otherwise "trusted reliable" benchmark.
Konrad told the court that during test runs of submissions some banks would submit very high rates and some very low rates. He said the steering committee came to the conclusion that this was "acceptable" and not manipulation.
He said that as long as the submissions were within the correct range of rates, putting them higher or lower should have been "okay".
When asked whether the committee had considered at the time whether the rate could be manipulated, Konrad responded: "We thought about it, but we thought that the system of so many banks … it was hardly if at all possible to do that."
Cross-examining, Emma Deacon for the SFO asked Konrad whether he agreed that it was true that a swap on a trader's book that had the potential to win him more money had "nothing to do" with the rate at which cash was being offered in the interbank market.
After several rounds of questioning, he said: "I reluctantly agree."
The trial continues.