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JPMorgan Exits Australia Rate Panel

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As per Reuters, JPMorgan Chase & Co. (JPM) is withdrawing from the rate-setting panel of Australia's benchmark interbank lending rates by the end of this month. It is widely speculated that the decision was driven by intense scrutiny, which the company is currently facing for its alleged role in London interbank offered rate or LIBOR manipulation scandal.

With the imminent exit of JPMorgan, the panel that sets Australia's bank bill swap (:BBSW) reference rate, supervised by the Australian Financial Markets Association (:AFMA), will fall to 12 from 14. Earlier in February, Swiss bank UBS AG (UBS) pulled out of the panel after it was penalized $1.5 billion by the U.S., UK and Swiss authorities to resolve charges against the bank for its involvement in the manipulation of LIBOR.

The authorities have come down hard on such unwarranted activities of the banks by levying hefty fines. Banking biggies including Barclays PLC (BCS) and The Royal Bank of Scotland Group plc (RBS) have also been penalized.

Besides Australia, JPMorgan is planning to reduce its participation in the other regional rate setting panels. It is to be noted that the company is not accused of manipulating BBSW unlike UBS.

Amid intense scrutiny, following the LIBOR rigging scandal, banks across the globe have been departing from regional rate setting panels. For instance, Citigroup Inc. is reducing its role in setting Malaysia’s benchmark rate, whereas Dutch lender Rabobank pulled out of the EURIBOR panel. Royal Bank departed from interbank panels in Singapore, Hong Kong and Tokyo.

The departure indicates that rates will become less competent at determining the borrowing costs, with fewer global institutions participating. However, it is wiser for the institutions to move out given stringent regulations and augmented legal liabilities, which may result in increased litigation expenditure.

Currently, JPMorgan carries a Zacks Rank #3 (Hold).

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