Libor Scandal: Sixteen Banks Sued By US Regulator

Sixteen banks, including Barclays, are being sued by a regulatory body in the US that alleges they were involved in fixing the Libor interest rate.

The “Libor scandal” has been going on for some time now and speculation has been rife about the enforcement measures that might be taken against organisations accused of fixing the Libor rate. Now, it has finally been revealed that a US regulator is suing a total of 16 of the biggest banks in the world.

UBS, Barclays, Bank of America, Citigroup, Deutsche Bank, JP Morgan Chase, HSBC and Royal Bank of Scotland (RBS) are among the institutions being sued by the Federal Deposit Insurance Corp (FDIC). It claims they all set out to manipulate the London interbank offered rate (Libor), which eventually caused 38 US banks significant losses before they closed during the credit crunch and global financial crisis.

An important benchmark which is used to determine the interest rates payable on contracts around the world, Libor is the average interest rate at which banks lend to each other in their complex financial transactions. It changes from day to day, being set afresh every morning by the financial data company Thomson Reuters.

But in order to calculate the appropriate rate, the company depends on the submission of estimates from members of the British Bankers Association (BBA). The current accusations state that some banks were deliberately providing inaccurate information in a bid to get a more favourable rate for each day’s trading and increase their profits.

It gave them the power to artificially inflate the prices they charged and widen their own profit margins, FDIC alleges – which came at the expense not just of consumers, but of the failed banks on whose behalf it is pursuing the case.

Perhaps more controversially, BBA is also being sued by the FDIC, which alleges the trade association was aware of and participated in the manipulation of rates so that it could keep its members happy and continue to make money from Libor licenses.

Investigations have been ongoing in Europe, Asia and the US for the past two years and several civil and criminal cases have been brought against offending banks and individuals. USA Today reports that a number of institutions including RBS, Barclays, UBS, Rabobank and ICAP have been hit with a collective $3.6 billion (£2.17 billion) in fines by regulatory bodies in different countries.

<Image courtesy Howard Lake/Some rights reserved>