ASIC to argue BBSW rig hit mortgages

The regulator will argue alleged manipulation of the bank bill swap rate hurt Australian mortgage holders.

ASIC will argue that manipulating the BBSW influenced the cost of mortgages. Picture: The Australian.

The Australian Securities & Investments Commission will argue that the alleged manipulation of the bank bill swap rate by the biggest banks in Australia filtered through to the price of thousands of home loans across the country via non-banks relying on mortgage securitisation.

It stands in contrast to arguments put forward by the industry that manipulating the BBSW rate did not affect the prices of mortgages across the country.

That idea was most notably put forward by former banker David Murray, leader of the government’s latest Financial System Inquiry, who recently said it was “wrong to allege that the home loan contract is linked to the bank bill swap rate”. Mr Murray said rather that “business and corporate lending is, however, quoted (as a margin over the BBSW)”.

However, The Australian understands that ASIC will argue that manipulating the BBSW influenced the cost of mortgages for borrowers through smaller lenders and non-bank securitisers, which rely on the inter-bank lending rate to fund the rolling up of homeloans into mortgage bonds.

Non-banks, which account for only a small slice of all Australian mortgage lending, use short-term bridging finance to write home loans — usually stumped up by the big banks — which are then pooled into mortgage bonds and sold to investors. The big four banks write around 80 per cent of Australian mortgages, but smaller securitisers are continuing to eat away at the majors’ dominance of the market and the cost of funding is a key input into their competitive position against their larger incumbents.

ASIC has so far launched lawsuits alleging BBSW manipulation against NAB, Westpac and ANZ, with only CBA currently spared from legal action. But it is understood CBA will also be dragged before the courts.

ASIC is understood to be pushing for an out-of-court settlement on the condition that the banks make an admission of guilt, which the lenders are opposed to doing.

The BBSW is the reference rate used to price billions of dollars worth of business loans, derivatives and other securities in the Australian financial market. While the BBSW is priced via supply and demand, banks did not explicitly state that the reference rate could be manipulated through the dumping or buying up of bank bills, which may be construed as “unconscionable conduct”.

Between 2007 and 2013 the BBSW was set by a panel of 14 banks, including CBA, Westpac, NAB and ANZ, as well as international investment banks, which would bid at the rate at which they would lend money to each other. The watchdog has been conducting a three-year investigation into the behaviour of Australia’s four major banks and investment banks that formed part of the BBSW rate-setting panel up until 2013.

Documents filed in the Federal Court this week showed that discussion of rate-rigging was widespread within the banking industry, with smaller institutions complaining to NAB that they were “screwed” in the process.