Fed lifts Deutsche Bank's FX consent order, closing the benchmark-rigging era

The Federal Reserve said Thursday that it has terminated the 2017 consent order it imposed on Deutsche Bank over foreign exchange manipulation, with the termination effective Aug. 14 ^[1]. That closes the last open supervisory file from the 2010s benchmark-rigging cases: of the banks caught up in the scandal, Deutsche Bank's was the final order to be dropped, and the other five were released between 2020 and 2023 ^[2][3].

The order was not cheap and it was not brief. It carried a $137 million fine plus compliance conditions including tighter internal oversight and an obligation to hand information and evidence to regulators ^[4]. According to American Banker, Deutsche Bank is free of the consequences of the Obama-era matter after nine years ^[5]. The bank declined to comment on the termination ^[6].

The Fed's 2017 findings are worth rereading precisely because the paperwork is now gone. The regulator accused Deutsche Bank of lacking adequate governance policies and failing to prevent "unsafe and unsound" practices by its FX traders, including conduct in multi-bank chat rooms ^[7]. Spot FX traders at the bank "routinely communicated with FX traders at other financial institutions through chat rooms on electronic messaging platforms accessible by traders at multiple institutions," the Fed wrote ^[8], and those chats included "attempts to influence contributions to submission-based foreign currency benchmarks ... in order to possibly benefit Deutsche Bank" ^[9]. The action required the bank to fire the traders involved and never rehire them ^[10]. The order also recorded that the bank had "fully cooperated" and was improving its compliance systems ^[11].

The scale of the original enforcement wave explains the length of the tail. In 2015, JPMorganChase, Citi, Barclays, UBS, Royal Bank of Scotland and DB Group Services, a British subsidiary of Deutsche Bank, were all named in a set of guilty pleas that, in American Banker's description, shocked the banking world ^[12]. The Justice Department alleged that from 2007 to 2013, FX traders at rival banks coordinated in secret, often in online chat rooms, to move dollar-euro benchmark rates to their own advantage ^[13] - seven calendar years of conduct ^[14]. "Deutsche Bank secretly conspired with its competitors to rig the benchmark interest rates at the heart of the global financial system," then-assistant attorney general Bill Baer said at the time, adding that the misconduct "undermined the integrity and the competitiveness of financial markets everywhere" ^[15].

Deutsche Bank also drew a second 2017 Fed consent order, a $20 million penalty for failing to comply with the Volcker Rule's ban on proprietary trading; that one was terminated in 2020 ^[16]. The two 2017 Fed penalties together came to $157 million, with the FX fine roughly 6.9 times the Volcker fine ^[17][18].

What to watch: whether the permanent obligations embedded in the order, such as the bar on rehiring the traders involved ^[10], are treated as surviving its termination, since the Fed's announcement as reported does not address that ^[1]. Also worth watching is the cadence itself. An order that takes eight or nine years to clear is a durable constraint on management attention and hiring, not a one-time fine, and that is the number to price when the next benchmark or conduct case lands.