The Federal Reserve has fined the French bank BNP Paribas $246 million for not monitoring bankers who manipulate foreign exchange markets. It’s the latest in a string of fines issued for currency price fixing.
Traders who knew that they were about to place a large exchange between currencies would go into exclusive online chatrooms and give traders at other banks a heads-up. Knowing which currencies were about to go up or down made it easy to collect a quick profit. The traders also colluded to set the daily price in order to maximize profits on their trades.
Michael Melvin, professor of global finance at UC San Diego, said, "The foreign exchange market is like a repeated game where you're trading with the same people over and over again and you develop relationships with these people."
The losers in this game were the bank's clients, often pension funds. To date, banks have been fined close to $10 billion for activities that went on for over a decade.
