Manhattan - Sixteen of the world’s biggest banks have been sued by the US Federal Deposit Insurance Corporation (FDIC) for allegedly manipulating the London interbank offered rate (Libor) from 2007 to 2011.
The FDIC, acting as receiver for 38 failed banks including Washington Mutual Bank, IndyMac Bank and Colonial Bank, claimed that institutions sitting on the US dollar Libor panel “fraudulently and collusively suppressed” the rate.
The suit, filed on Friday in Manhattan federal court, fingers banks including Bank of America, Citigroup and Credit Suisse. Also named in the suit is the British Bankers Association, the industry group that previously oversaw Libor.
Regulators worldwide have been probing whether firms colluded to manipulate interest rate benchmarks including Libor, which affects more than $300 trillion (R3 quadrillion) of securities worldwide. Financial institutions have paid about $6 billion so far to resolve criminal and civil claims in the US and Europe that they manipulated benchmark interest rates.
The cost for global investment banks could climb to $46bn, analysts at KBW said last year. JPMorgan Chase and HSBC Holdings may soon face an EU complaint from the bloc’s antitrust chief.
The failed US banks “reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,” would determine the benchmark, the FDIC said in its suit.
In New York trading on Friday Bank of America dropped 36c to $16.80, Citigroup declined 45c to $46.88, and Credit Suisse’s American depositary receipts fell 77c to $30.25.
Barclays, Rabobank, UBS and Royal Bank of Scotland have resolved Libor-related investigations with regulators. Investigators claim the banks altered submissions used to set the benchmark to profit from bets on interest-rate derivatives or to make the lenders’ finances appear healthier.
The other banks sued are JPMorgan Chase, HSBC, Barclays, Rabobank, UBS, Royal Bank of Scotland, Deutsche Bank, Lloyds Banking Group, Société Générale, Norinchukin Bank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi and WestLB.
In its complaint, the FDIC claimed the fixed rates caused the failed banks to pay higher prices for Libor-based financial products and to get lower interest payments from the defendants and others.
Many of the failed banks had sought out Libor-based derivatives as protections, not to seek capital gains, said Robert De-Young, a University of Kansas professor who is a research fellow at the FDIC.
The FDIC claims breach of contract on behalf of 10 of the failed banks, including Washington Mutual and IndyMac, which entered into Libor-based interest-rate swap contracts with banks that are named as defendants. It alleges the banks committed fraud and violated US antitrust laws in fixing the US dollar Libor benchmark. It is seeking unspecified damages on behalf of the failed banks, including punitive damages and triple damages for price-fixing.
A spokesman for the FDIC declined to comment and spokespeople for the banks either declined to comment or did not respond to requests for comment. – Bloomberg