The recent lawsuit from the FDIC is the latest skirmish in a global investigation into Libor, which is used in setting rates on $800 trillion of loans and securities.
The Federal Deposit Insurance Corporation said the defendants’ conduct caused substantial losses to 38 banks that the U.S. regulator had taken into receivership since 2008.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
Libor, or the London Interbank Offered Rate, is a global benchmark that is calculated daily, using estimates from banks of their own interbank rates. The Libor scandal erupted a couple of years ago when Barclays was fined £290 million by British and US regulators for attempted manipulation of Libor.
Last September, the National Credit Union Administration (NUCA), the US credit union regulator, filed an anti-trust lawsuit against 13 major international banks as part of the global crackdown in the Libor rate-rigging scandal.
The FDIC filed its lawsuit Friday in Manhattan Federal Court, accusing 17 banks of manipulating the Libor for their own advantage and profit. The FDIC indicated in its lawsuit that many of the banks being sued had portfolios in 2007 and 2008 that could profit from reductions in floating interest rates. In its lawsuit, FDIC also named the British Bankers’ Association, a private association of large U.K. banks that had administered Libor during the period at issue.
Since 2008, financial institutions have paid a total of more than $5 billion in penalties to settle U.S., U.K. and European Union allegations they tried to rig Libor, and a dozen individuals have been criminally charged in the U.S. or U.K.
In its lawsuit, the FDIC said the defendants’ conduct caused substantial losses to 38 banks that the U.S. regulator had taken into receivership since 2008, including Washington Mutual Bank and IndyMac Bank.
Some of the leading banks named as defendants include Bank of America Corp (NYSE:BAC), Barclays PLC (NYSE:BCS) (LON:BARC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM).
The Libor system was found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.