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  • Dec 18, 2014
  • Updated: 11:08am

Libor

Libor (London interbank offered rate), is meant to represent how much banks pay to borrow from one another. It is also a benchmark for at least US$550 trillion worth of contracts spanning interest rate derivatives to residential mortgages. A scandal erupted after banks were found to be rigging the system. Barclays was fined US$453 million by global regulators in June 2012 for manipulating Libor, and UBS was hit with a US$1.5 billion bill in December 2012. In February 2013, RBS was fined US$612 million to settle US and UK regulatory charges of misconduct, manipulation, attempted manipulation and false reporting of yen, Swiss franc and dollar-denominated Libor. 

BusinessBanking & Finance
FINANCE

US regulator sues 15 banks, including HSBC, for rigging Libor benchmark

FDIC says interest rate manipulation caused 'substantial losses' to 38 now-closed lenders

PUBLISHED : Sunday, 16 March, 2014, 5:54am
UPDATED : Sunday, 16 March, 2014, 5:54am

The US Federal Deposit Insurance Corporation (FDIC) has sued HSBC, Citigroup, Deutsche Bank and 12 other big global banks for manipulating the Libor benchmark interest rate.

The manipulation caused "substantial losses" to 38 US banks that were shut down due to insolvency during and after the 2008 financial crisis, according to the FDIC.

The regulator said the accused institutions cheated the closed banks in US dollar-based Libor swaps and other agreements through the manipulation of the rate between 2007 and 2011.

Libor, or the London Interbank Offered Rate, is used as a reference for some US$350 trillion worth of financial contracts worldwide, from corporate loans to financial swap contracts.

The banks named are, or were, participants in setting the daily Libor rate.

They include Bank of America and JPMorgan Chase of the United States, Germany's Deutsche Bank and WestLB, which is no longer in business, Britain's Barclays and Lloyds banks and Royal Bank of Scotland, Japan's Norinchukin Bank and Bank of Tokyo-Mitsubishi, Credit Suisse and UBS of Switzerland, Royal Bank of Canada and Rabobank of the Netherlands.

Several of the banks have already paid substantial fines to regulators and judicial authorities in the United States and Europe for their participating in rate-fixing.

Also sued was the British Bankers' Association, which at the time oversaw the banks' daily fixing of Libor. "BBA participated in the alleged scheme to protect the revenue stream it generated from selling Libor licenses and to appease the Panel Bank Defendants that were members of the BBA," the filing on Friday said.

The FDIC said it was seeking full damages for losses incurred by the closed banks, punitive damages and damages for violating US antitrust statutes.

The US and British central banks began investigating rigging of the Libor rate in the middle of the financial crisis in 2008.

But those probes only bore concrete fruit in 2012, when Barclays bank was the first to settle allegation and was forced to pay fines of US$450 million.

Since then, UBS has been fined US$1.5 billion by US, British and Swiss regulators, and RBS has paid out more than US$600 million.

The Hong Kong Monetary Authority separately concluded that UBS had attempted to rig the local benchmark rate Hibor.

The HKMA said it found about 100 internal chat messages sent during 2006 to 2009 that "contained change requests by several UBS traders to the UBS Hibor submitter with a view to rigging the Hibor".

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