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Lie-bor: an expensive “fix”

The FDIC filed a lawsuit in the federal district of New York, on Friday 14th March, accusing 16 of the world’s largest banks[1] of manipulation of the discredited benchmark rate-series, committing fraud and violating U.S. antitrust laws. The suit is made on behalf of a group of 38 U.S. banks, all casualties of the 2008 financial crisis and for which the FDIC is responsible in receivership. All banks named in the suit sat on the panel which contributed to the daily LIBOR fixings; the BBA industry trade group, previously responsible for oversight of the benchmark-setting process, is also named in the action. The FDIC alleges that the defendants “fraudulently and collusively suppressed” the rate, flattering their apparent creditworthiness and thereby imposing adverse costs on other market participants.

Given that the scandal first broke in an exposé by the WSJ on the 16th April 2008, perhaps the real question is “Why has it taken so long?” The Libor scandal has already cost banks approximately $6bn. in fines alone, reputational and reorganizational costs are somewhat harder to quantify. The FDIC is suing for unspecified damages, for punitive damages and triple damages for price fixing. In a report last year, analysts at KBW estimated the final Libor costs at up to $46bn. It is also likely that HSBC Holdings and JP Morgan Chase & Co will face similar action from the EU next month. Spokesmen from the 16 banks have made no comment to date.

[1] Bank of America Corp, Barclays PLC, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase &Co, The Royal Bank of Scotland Group PLC, UBS AG, Rabobank, Lloyds Banking Group PLC, Société Générale SA, Norinchukin Bank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi UFJ Ltd. (WestLB AG is also included in the lawsuit, but is presumably ineligible due to its earlier EU-mandated demise)

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