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Australia cracks down on interest rate-rigging

Australian dollar bills Image copyright AFP

Australia has announced stiffer penalties for interest rate-rigging as the chiefs of its four biggest banks are grilled by MPs.

Under the new rules, manipulation of the rates used when banks lend money to each other will be a criminal offence.

The plans were announced as the top four bank chiefs face tough questions from a parliamentary inquiry.

The probe comes as the ongoing crisis at Deutsche Bank has put a fresh spotlight on the global banking sector.

Australia's treasurer, Scott Morrison, said the tough new rules were to "ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future".

The interbank lending rate is set each day by banks quoting the interest rates they were paying and receiving.

Three of Australia's big four - ANZ, Westpac and National Australia - are facing charges over rate rigging between 2010 and 2012. None have admitted any wrongdoing.

In a statement on the regulatory shake-up, Mr Morrison said the manipulation of any financial benchmark or financial product used to determine a financial benchmark was to be made "specific criminal and civil offence".

"This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union," he said.

'Profitability'

The parliamentary inquiry is only partly focusing on the rate-rigging scandal, as the main trigger was public anger when banks failed to pass on the full reduction in the central bank's main lending rate to borrowers with home loans.

"There is no commercial basis for them other than for them to improve their profitability," prime minister Malcolm Turnbull said at the time in August. "They had every cause to pass on the full extent of that rate cut."

He then announced the parliamentary inquiry as an annual session with the chief executives of the four biggest banks answering questions.

The inquiry is also in response to pressure on the government to launch a royal commission after a series of earlier scandals ranging from poor financial advice for customers to the alleged fixing of interest rates.

Image copyright Getty Images
Image caption Commonwealth Bank chief executive Ian Narev

The inquiry began on Tuesday with Ian Narev, chief executive of the Commonwealth Bank of Australia.

He told MPs that at the time the bank was trying to balance the competing needs of mortgage customers with savers who had been earning low interest rates on deposits.

The bosses of ANZ, National Australia Bank and Westpac will be the next to appear at the committee, which is scheduled to run until Thursday.

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