March 15, 2014 in Business

FDIC sues 16 large banks for allegedly rigging global interest rate

Marcy Gordon Associated Press
 

WASHINGTON – The Federal Deposit Insurance Corp. has sued 16 big banks that set a key global interest rate, accusing them of fraud and conspiring to keep the rate low to enrich themselves.

The banks, which include Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. in the U.S., are among the world’s largest.

The FDIC says it is seeking to recover losses suffered from the rate manipulation by 10 U.S. banks that failed during the financial crisis and were taken over by the agency. The civil lawsuit was filed Friday in federal court in Manhattan.

The banks rigged the London interbank offered rate, or LIBOR, from August 2007 to at least mid-2011, the FDIC alleged. The LIBOR affects trillions of dollars in mortgages, bonds and consumer loans. A British banking trade group sets the LIBOR every morning after the 16 international banks submit estimates of what it costs them to borrow. The FDIC also sued that group, the British Bankers’ Association.

By submitting false estimates of their borrowing costs used to calculate LIBOR, the 16 banks “fraudulently and collusively suppressed (the LIBOR rate), and they did so to their advantage,” the FDIC said in the suit.

Four of the banks – Britain’s Barclays and Royal Bank of Scotland, Switzerland’s biggest bank UBS and Rabobank of the Netherlands – have previously paid a total of about $3.6 billion to settle U.S. and European regulators’ charges of rigging the LIBOR. The banks reach deals with the U.S. Justice Department that allow them to avoid criminal prosecution if they meet certain conditions.

The process of setting the LIBOR came under scrutiny after Barclays admitted in June 2012 that it had submitted false information to keep the rate low.

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