FDIC charges 16 banks with manipulating Libor

The headquarters of Barclays Plc and HSBC Holdings Plc stand amongst the offices of Citigroup Inc., State Street Corp., and No. 1 Canada Square, in the Canary Wharf business district of London./ Bloomberg

The Federal Deposit Insurance Corp. has filed suit against 16 major banks on behalf of 38 failed banks, charging them with manipulating the London interbank offered rate, or Libor.

The FDIC's 108-page lawsuit, which was filed Friday in U.S. District Court in New York against Charlotte, N.C.-based Bank of America Corp., New York-based Citigroup Inc., London-based Barclays Bank P.L.C. and others, states that Libor is a benchmark rate “indexed to trillions of dollars in interest-rate swaps and loans that plays a fundamentally important role in financial systems throughout the world.”

The lawsuit says defendants on the United States Dollar Libor Panel and the British Bankers' Association “touted Libor as a simple, transparent benchmark calculated from competitive interest rates in the market for unsecured interbank loans. In truth, however, the (United States Dollar Libor Panel) defendants fraudulently and collusively suppressed (the U.S. dollar Libor rate), and they did so to their advantage” from August 2007 through at least 2011.

The London-based BBA “participated in the alleged scheme to protect the revenue stream it generated from selling Libor licenses and to appease the (United States dollar Libor panel) defendants that were members of the BBA.”

The lawsuit charges that the defendants' actions caused “substantial losses” to the closed banks, which “reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,” would determine the Libor rate.

Charges include unjust enrichment, fraud, negligent misrepresentation and tortious interference with contract, among others.

Citibank and Bank of America spokesmen had no comment, while spokesmen for the BBA and Barclays could not immediately be reached.

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Commenting on the litigation, Kevin LaCroix, an attorney and executive vice president at Beachwood, Ohio-based RT ProExec, a division of R-T Specialty L.L.C., said the FDIC is “in a salvage mode. They're trying to recover losses any way they can. If they believe they have a valid claim, they're' going to pursue it.”

By filing lawsuit on behalf of 38 failed banks, the FDIC has a more viable claim than had it filed the lawsuits individually, he said.

In 2012, Barclays agreed to pay about $450 million in fines to settle investigations by the U.K. Financial Services Authority, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice that it and other banks manipulated Libor before and during the 2008 financial crisis, keeping it artificially low to make the bank's bottom line appear stronger.