* Deutsche Bank regulatory chief faces questions at Berlin
* Deutsche Bank has made provisions for Libor probe - board
* Bank declined to quantify size of provisions made for
By Edward Taylor and Matthias Sobolewski
BERLIN, Nov 28 German politicians called for
tighter regulation of global interest rates after questioning
Deutsche Bank about the manipulation of London's
Libor benchmark lending rate.
The flagship lender said it had made some provisions to
cover the costs of various probes of possible manipulation of
benchmark interest rates and reiterated that there were no signs
that senior management had behaved inappropriately.
But politicians in Berlin were unimpressed.
Representatives from the Greens, SPD and the conservative
Christian Democrats (CDU) were left dissatisfied with "meagre"
responses to their questions and called for stronger regulation
of the London interbank offered rate (Libor) in the wake of
manipulation that came to light earlier this year.
"There has to be much stronger controls. Here we have
another example where the freedom of the markets was abused,"
said Klaus-Peter Flosbach of the CDU.
Libor, used to price billions of dollars' worth of financial
contracts, was thrown into the spotlight in June when the UK and
United States fined British bank Barclays a record $450
million for fixing rates during the credit crunch.
Deutsche Bank is talking to authorities in the United States
and Europe investigating the setting of rates between 2005 and
Deutsche Bank board member Stephan Leithner, in charge of
regulation, was quizzed by the German Bundestag lower house's
Finance Committee on Wednesday after the bank decided not to
send Co-Chief Executive Anshu Jain.
In a tense two-hour session, Leithner provided few answers
to repeated questions about Deutsche's involvement in the
"We are working with authorities under strict
confidentiality and therefore cannot give specific details about
the status of probes," Leithner told the hearing.
Leithner, however, did say the bank had made provisions to
cover the various regulatory probes, without quantifying the
size of such provisions.
Asked whether the bank expects to make provisions for damage
claims related to class-action lawsuits, Leithner said he did
not currently foresee damage payments.
Among the politicians who called for rate-setting to be
regulated was Lothar Binding, from Germany's opposition Social
Democrats (SPD), who described Leithner's answers as "meagre."
"This was a real cover-up. If the boss doesn't come on stage
it leaves a bad impression," Binding said, referring to Jain.
Green party politician Gerhard Schick added that the
promised change of culture towards an open dialogue with society
by the new leadership at Deutsche Bank "was not evident".
Leithner repeated a previous admission by the bank that some
of its staff had not behaved appropriately, but that no members
of the management board were involved.
"The current challenge is to restore trust. This is why we
are taking it very seriously," Leithner told the hearing.
The probe is likely to strain an already-tense relationship
between bankers, who prefer to keep out of the public eye, and
politicians, who are eager to demonstrate their grip on the
world of global finance.
German regulator BaFin said banks were cooperating well with
investigations. BaFin launched a special investigation of
Deutsche Bank in July. Raimund Roeseler, head of bank
supervision, said BaFin had become aware of Libor as a potential
issue in spring 2010, after the U.S. Commodity Futures Trading
Commission told German regulators it had questioned a bank about
Deutsche had been cooperating with authorities on matters
related to Libor for some time but German regulator BaFin in
July decided to launch a so-called special probe of Deutsche
Bank, Roeseler said.
BUBA AGAINST INTERFERENCE
Germany's Bundesbank has urged Berlin's lawmakers not to
interfere in efforts to overhaul a system for setting global
benchmark interest rates, a filing to the parliamentary hearing
in Berlin showed.
In a letter addressed to the hearing, Bundesbank board
member Andreas Dombret urged lawmakers to let markets decide
"Any change to a different reference interest rate should be
a matter of free choice for markets and not imposed through
lawmakers," the letter said.
Because Libor remains so entrenched in financial markets,
regulators are working on ways to reform, rather than replace
Dombret said benchmark rates should take greater account of
actual transactions, rather than relying only on estimates.
Regulators fear that Libor remains vulnerable to
manipulation as banks are asked to submit only a hypothetical
estimate about their expected borrowing rate, rather than
disclosing the actual prices of completed transactions.