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ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, HOST:

And I'm Melissa Block.

Another big bank is admitting to wrongdoing and is paying a huge fine to regulators. This time, it's the Swiss bank UBS putting up a billion-and-a-half dollars, and admitting that it tried to manipulate a key global interest rate. It's the second largest penalty ever paid by a bank. Two former traders at the bank have also been charged with conspiracy.

Here's David Kestenbaum with NPR's Planet Money Team to explain how it all worked.

DAVID KESTENBAUM, BYLINE: Before we get to the interest rate, let me tell you a little story about a cylinder that sits in a vault in France. The cylinder is the reference kilogram for every scale in the world. Now imagine someone had been shaving bits off that kilogram or adding bits to it. Every weight in the world could be slightly off. That kilogram of coffee you just bought, was it really a kilogram?

That is basically the situation here, except that the thing being manipulated was an interest rate, known as LIBOR.

LANNY BREUER: The banks conduct was simply astonishing.

KESTENBAUM: This is Assistant Attorney General Lanny Breuer at a press conference today.

BREUER: Hundreds of trillions of dollars in mortgages, student loans, credit cards debt, financial derivatives, and other financial products worldwide are tied to LIBOR.

KESTENBAUM: LIBOR stands for London Interbank Offered Rate. The number comes from a survey of banks, asking the banks: If you could borrow money today, what interest rate do you think you would have to pay? But it's just a survey. The banks could say whatever they wanted. And the banks sometimes gave false numbers. That allowed traders at the banks to manipulate the interest rate for their own purposes, often to make money.

Traders are constantly buying and selling financial instruments. And sometimes the value of those things depended on LIBOR. Tweaking LIBOR just a bit, up or down, could make you big money on certain trades. Sometimes the manipulation involved people at different institutions working together, colluding, and then patting each other on the back.

BREUER: As one broker told a UBS derivatives trader, quote, "Mate, you're getting bloody good at this LIBOR game. Think of me when you're on your yacht in Monaco, won't you?"

KESTENBAUM: That's one example. Here's another from a report by the British financial regulator the FSA. My colleague Robert Smith is going to read it. You'll hear the term 6s, that's the interest rate for six month loans.

ROBERT SMITH, BYLINE: (Reading) If you keep 6s unchanged today I will (CENSORED) do one humongous deal with you. Like, a 50,000 buck deal, whatever. I need you to keep it as low as possible. If you do that, I'll pay you, you know, $50,000, $100,000 dollars - whatever you want. I'm a man of my word.

KESTENBAUM: There were other reasons to manipulate LIBOR. During the financial crisis, a low LIBOR made the banks look healthier. If they could borrow at a low rate, that was a sign they were financially sound.

According to the British bank regulator, the manipulation went on for six years. Sorting out who was harmed by all this, that is complicated. If you got a mortgage and the interest rate was being artificially pushed down, well, it may have saved you a little money.

But for every winner there is a loser. One class action lawsuit lists plaintiffs including the City of Baltimore and the firefighters and police of New Britain, Connecticut.

David Kestenbaum, NPR News.

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