Dispute arises after deputy minister questions whether key banking rate is rigged

13-04-2015

A dispute has broken out after a deputy minister of finance, Martin Pros, called on the Czech National Bank to investigate possible manipulation of an important reference rate in domestic banking. The central bank has dismissed the suggestion, while Finance Minister Andrej Babiš has criticised the official’s move.

Czech National Bank, photo: archive of Radio PragueCzech National Bank, photo: archive of Radio Prague Mr. Pros sent a letter to the Czech National Bank asking it to look into whether there had been manipulation of the Prague InterBank Offered Rate, or Pribror.

It is the average rate at which banks are willing to lend to one another on the Czech interbank money market.

Set by the Financial Markets Association of the Czech Republic on a daily basis using data from six commercial banks (Česká spořitelna, ČSOB, Komerční banka, UniCredit Bank, Raiffeisenbank and Expobank), Pribor is the rate on which many loans are based.

The business daily Hospodářské noviny reported last month that Pribor was not in fact a market rate but simply a made-up figure that did not represent current money market trends.

Allegations were made that the reference banks manipulated the rate for their own gain – and that such changes resulted in greater income from loans.

In the communication sent by Mr. Pros to the Czech National Bank on Friday he said that the Ministry of Finance had reason to believe the suspicions of rigging were grounded in fact.

The official said the central bank had cut its interest rate to almost zero while the three-day Pribor rate was at 0.32 percent – and asked whether the latter was not being kept high by artificial means.

Central Bank vice-governor Vladimír Tomšík on Sunday responded to the charge, telling a TV discussion show that the deputy minister’s letter had been based on assumptions and ignorance.

The move, Mr. Tomšík said, was an unprecedented attack on the credibility of the Czech banking sector that was in no way grounded in reality.

The letter was based on one newspaper article that made a false comparison between Pribor and Euribor (the Euro Interbank Offered Rate), he said.

Mr. Tomšík also criticised the deputy minister’s approach. He said it wasn’t possible for an official at Mr. Pros’s level to send such a letter to the governor of the Central Bank on a Friday evening, when the minister of finance was out of the country.

Given that Minister Andrej Babiš was unaware of the missive, it is unclear whether it was communication from the ministry or merely from a single state official, Mr. Tomšík said.

While Minister Babiš heads ANO, Mr. Pros is from the Social Democrats. The parties are coalition partners but also political rivals and Mr. Babiš reacted angrily to his nominal deputy’s move, saying it damaged the reputation of the banking sector.

13-04-2015