FDIC Sues Big Banks For Rigging Interest Rates

Sixteen of the world’s largest banks were sued Friday by the Federal Deposit Insurance Corporation (FDIC) for fixing the London interbank interest rate (Libor). According to the FDIC, the move cost smaller, failed American banks such as Washington Mutual, IndyMac and Colonial money.

Bloomberg reported that the FDIC, receiver for 38 failed banks, charged that the large institutions 'fraudulently and collusively suppressed' the U.S. Libor rate. The British Bankers Association, an industry group, was also named in the lawsuit.

In its complaint the FDIC said, "The failed banks 'reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,' would determine the benchmark.”

The Libor interest-rate benchmark, among others, affects more than $300 trillion in securities worldwide according to Bloomberg. So far, financial institutions have paid $6 billion to resolve criminal and civil claims in the U.S. and Europe that the banks manipulated benchmark interest rates.

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A Reuters report named Bank of America BAC, Citigroup C, Credit Suisse CS, Deutsche Bank DB, HSBC HSBC, JPMorgan Chase JPM, and Royal Bank of Scotland RBS among the defendants.

Others included Rabobank, Lloyds Banking LYG, Societe Generale, Norinchukin Bank, Royal Bank of Canada RY, Bank of Tokyo-Mitsubishi UFJ and WestLB AG.

Among the charges made by the FDIC was the allegation that the large banks broke swap contracts they had entered into with the smaller banks and then colluded to rig the Libor rate to which those contracts were tied.

Barclays BCS and UBS AG UBS were among the banks that had already paid out about $6 billion to resolve manipulation charges made by U.S. and European authorities, according to Reuters.

In addition, some investors have sued claiming they lost money due to the collusion. Last March a federal judge dismissed some of those claims that were based on antitrust law, but had yet to rule on others that claim “breach of contract.”

Daniel Brockett with Quinn Emanuel Urquhart & Sullivan, speaking about the breach of contract claims said, "These look very much like claims that I think are going to have a much better chance with the court."

The lawsuit filed by the FDIC does not specify the amount of damages that are being sought.

At the time of this writing, Jim Probasco had no position in any mentioned securities.

Posted In: Bank of AmericaBank of Tokyo-Mitsubishi UFJBarclays PLCBritish Bankers AssociationCitigroupColonialCredit Suisse GroupDaniel BrockettDeutsche BankEuropeFDICFederal Deposit Insurance CorporationHSBC HoldingsIndyMacJPMorgan ChaseLIBORLloyds Banking GroupLondonNorinchukin BankQuinn Emanuel Urquhart & SullivanRabobankRoyal Bank of CanadaRoyal Bank of ScotlandSociete GeneraleU.S.UBS AGWashington MutualWestLB AGNewsEventsMedia