The US regulator is planning to sue 16 banks for their part in the Libor rate fix between 2007 and mid 2011. The Libor rate is created by the larger banks contributing estimates as to the current market to form the Libor rate. This rate then dictates the rate that banks lend money to each other.
The US regulators claim that 16 banks have been seen to have manipulated these figures for a period of time, creating a false Libor rate. The banks that are currently facing legal action include Barclays, HSBC, Citigroup, Royal Bank of Scotland, Credit Suisse, UBS, Robobank, Bank of America, JPMorgan Chase, Deutche Bank and Lloyds Bank.
The US regulators are also in the process of suing the BBA (British Bankers Association), because they believe that the BBA were involved in the alleged scheme that involved the selling of the Libor licences.
The Libor rate is used between the banking institutes, to set the rate of the interest payments that the banks will pay for loans between banking institutes. These rates can apply for a number of different products including mortgages and other financial products that the banking sector looks at. The US regulators believe that this manipulation has caused millions of dollars of losses, and many banks have suffered. The question arises as to the implications that the Libor fixing could have had on those financial institutes that collapsed during the financial crisis, which rocked the world in 2008.
There are claims some of the problems that happened in the years of the financial crisis, could have been avoided if this alleged fixing of the rate had been stopped before.
The US regulators have already imposed a number of fines, issued civil and criminal convictions to a number of individuals and banking institutions for their role in the fixing of the figures, to the amount of $3.7 billion dollars.
The problem that many people faced was the collapse of some banking institutions around the world after the potential crisis struck. This was largely blamed on the mortgages that were sold in America, to people who didn’t have the money or the income with which to pay. This led to the beginning of the financial crisis that saw many people lose their homes and banks running out of money.
Would this have made a difference to the financial crisis? It is believed that the crisis would still have happened, but the effects might not have been as bad or have caused the loss of so many financial institutions. A total of 38 US banks closed in this period because of the pressures that they were under; if the Libor wasn’t manipulated then these might not have closed, they might still be in business. There is no definite proof, but the theory behind the evidence points to this conclusion.
Therefore, waiting to see the outcome of these legal proceedings is going to be important news in the financial sector.