Attorney General Loretta Lynch announced that a number of banks will pay massive penalties for colluding to manipulate global markets in a crime that Lynch said displayed "breath-taking flagrancy." (AP)

Five of the world’s largest banks have agreed to pay more than $5 billion in fines to settle charges made by regulatory agencies and the Justice Department that the banks had acted in concert to manipulate international interest and foreign currency exchange rates.

Attorney General Loretta E. Lynch said the banks had engaged in “brazenly illegal behavior . . . on a near-daily basis.” She added that the deal showed that the government “intends to vigorously prosecute all those who tilt the economic system in their favor [and] who subvert our marketplaces.”

The scale of the price-fixing scandal is hard to grasp, yet it touched, imperceptibly, almost every company and individual in the financial markets. By tweaking global benchmarks used to set foreign exchange and interest rates for a staggering number of transactions a day, the banks — over several years — bilked billions of dollars of extra profits by altering rates in their favor.

Critics complained that the Justice Department had failed to prosecute any additional individuals. Wall Street watchdog group Better Markets called it a “slap on the wrist,” and Sen. Elizabeth Warren (D-Mass.) said in an e-mail: “That’s not accountability for Wall Street. It’s business as usual, and it stinks.”

The fines, however, are among the largest ever. Barclays will pay
$2.4 billion and fire eight employees who violated New York banking law for attempting to manipulate spot foreign exchange markets, in which $500 billion worth of dollars and euros are traded every day — five times as much as on all U.S. stock markets combined.

A combo of file photos showing branches and office buildings of JPMorgan Chase, UBS, Royal Bank of Scotland, Barclays and Citigroup. The five banks are to pay fines of a total of 5.7 billion U.S. Dollar for manipulating the foreign exchange market. (Epa/EPA)

Barclays, along with JPMorgan Chase, Royal Bank of Scotland Group and Citigroup, will plead guilty to conspiring to manipulate the price of U.S. currency and euros, authorities said.

UBS will plead guilty to manipulating the Libor rate banks used as a benchmark for interest rates after prosecutors said the bank violated an earlier deal.

This is the third criminal settlement with UBS in six years, and a senior Justice Department official said, “Enough is enough.” UBS will pay an additional Libor-related fine and report regularly to the Justice Department, which will ask the court to impose a three-year probation.

Lynch defended the settlements, saying, “This is not something that they enter into lightly nor something they enter into with any great joy in their heart.” She said that the Justice Department was requiring cooperation from the banks in identifying individuals who might have been involved in the ma­nipu­la­tion schemes.

Citicorp, a subsidiary of Citigroup, acknowledged a violation of the Sherman Antitrust Act and agreed in a settlement to a fine of $925 million — the largest fine ever imposed for violation of the act. Its settlement with the Federal Reserve includes a cease-and-desist order and a civil penalty of
$342 million.

Citigroup also announced that it had reached a separate agreement to settle related private U.S. class-action claims for a payment of $394 million, subject to court approval.

“The behavior that resulted in the settlements we announced today is an embarrassment to our firm and stands in stark contrast to Citi’s values,” Michael Corbat, Citigroup’s chief executive, said. “We began to take action quickly after becoming aware of these violations of our Code of Conduct and policies, and our internal investigation has so far resulted in nine terminations and additional disciplinary actions.”

Corbat added that “we will learn from this experience and continue building upon the changes that we have already made to our systems, controls, and monitoring processes.”

JPMorgan Chase said it had agreed to plead guilty to a single antitrust violation and pay a fine of $550 million. Under the resolution with the Fed, the firm will pay a fine of $342 million. The bank said it had previously set aside reserves for these settlements.

Many critics of the settlements said they would not change systemic or cultural factors that allow or even encourage criminal behavior. Yet the banks blamed a small number of traders. JPMorgan Chase chief executive Jamie Dimon said in a statement that “the lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us.”

Instead of competing with each other, traders conspired in a chat room called “Cartel” to fix the exchange rates that would be used to set prices for billions of dollars in currency trades, hurting other investors and manipulating consumer prices, according to officials.

Using coded language, members chatted in the minutes before 1:15 and 4 p.m., when snapshots of the euro-dollar exchange rates would be used to set prices for trades, to move the market to a price that would be profitable to them, the Justice Department said Wednesday. At other times of the day, they held off on trades to keep prices stable for others in the group to be able to close out of positions profitably.

The manipulations may have led to losses for large investors, such as pension funds, or corporations that were relying on a competitive market, Lynch said. Changes to the Libor rate, which is used to set rates on consumer loans, may have affected the rates people received on credit cards and mortgages.

But the currency trades, while substantial for large investors when pooled together, were likely too small individually to be noticed by retail investors, said Erin Davis, an equity analyst for Morningstar, a fund research firm. “These tiny amounts of money only add up to something for these large transactions,” she said.The settlements were long expected as a part of the years long investigation into the trades. “Dealing with these issues, including taking the appropriate disciplinary action against the individuals involved, is a necessary and important part of our plan to transform Barclays and remains a key priority,” Antony Jenkins, chief executive of Barclays, said in a statement.

Dennis Kelleher, president of Better Markets, a non-profit group, said that the Justice Department had not done enough, saying “it talks tough, but winks at Wall Street’s too-big-to-fail banks’ criminal conduct, structuring sweetheart deals to minimize the impact on the criminals.” Kelleher said the fines alone wouldn’t deter future criminal acts and that the Justice Department should punish bank executives and their supervisors for bad behavior. “Banks don’t commit crimes, bankers do,” he said.

Warren said that “the big banks have been caught red-handed conspiring to manipulate financial markets, and several have even admitted in court that they’re felons – but not a single trader is being held individually accountable, and regulators are stumbling over themselves to exempt the banks from the legally required consequences of their criminal behavior.”