LONDON Dec 19 Swiss bank UBS's $1.5
billion fine for interest rate rigging is likely to find its way
into U.S. and British state coffers, providing enough to build
around 60 U.S. middle schools or fund healthcare for about
60,000 typical American families.
The fine, split about $1.2 billion for the United States and
$260 million for Britain, is a drop in the ocean for two
countries struggling to rein in huge budget deficits. The United
States racked up a deficit of $172 billion in November alone.
However, cash-strapped governments are keen to raise funds
from wherever they can, and with banks being pursued for a
string of alleged misdeeds during the run-up to the global
financial crisis, this source of revenue is getting bigger.
Britain had, until recently, used regulatory fines on banks
to reduce the levy the industry pays to support the Financial
Services Authority (FSA) watchdog.
"We do not think it is fair that the fines from scandal-hit
banks go back into the banking industry," Prime Minister David
Cameron said earlier this year, after the government decided to
use a fine on Barclays - also for interest rate rigging
- to support military servicemen and their families.
UBS on Wednesday admitted to fraud, paying bribes to
brokers, and manipulation of global benchmark interest rates by
dozens of stuff. It is the second largest fine paid by a bank
after Britain's HSBC agreed to pay $1.9 billion last
week to settle a U.S. money laundering probe.
The U.S. fine on Barclays was funnelled from the U.S.
department of Justice (DoJ) to the Treasury and ultimately
became part of general U.S. expenditure.
A spokeswoman for the DoJ, speaking on Tuesday night before
the UBS fine was announced, declined to comment on whether any
penalty would be treated in the same way. The U.S. Treasury also
declined to comment.
The U.S. portion of the fine would be enough to build 60
middle schools at an average $20 million apiece or to fund
healthcare for 60,000 typical American families at an average
cost of $20,000 per family.
In Britain, a Financial Services Bill going through
parliament paves the way for regulatory fines in excess of
enforcement case costs to go the exchequer, a Treasury spokesman
"They (fines) can be applied to reduce borrowing or fund
public spending," he said, speaking on Tuesday night. "The
government is not going to speculate on how future revenues from
regulatory fines will be spent."
If the money is used to reduce borrowings, it would make an
approximate 0.13 percent dent in Britain's budget deficit in the
year to April 2013, which is expected to come in at just over
120 billion pounds.
"It can make the public finances a little bit better for
months, but in the context of an underlying deficit of 120
billion to 130 billion pounds, while whatever they get will be
welcome it's not going to be a game-changer," said Philip Shaw,
chief economist with Investec.
In the longer term, there could be negative economic
consequences, he added.
"You have to remember that you're also hurting the balance
sheets of the banks, and their ability to raise capital," he
said. "So while you might get a one-off boost, you could be
impeding public finance by restricting credit."