The Libor Scandal Worsens in the US

A different tune is being played in the United States following the manipulation rates scandal by Libor, an inter-banking lending market. While the numbers of prosecutions are still low, the Federal Deposit Insurance Corporation, the deposits guarantee agency, decided on Friday to take action on the matter. The FDIC, which has tutelary authority on more than 5,000 financial institutions, announced that it filed a complaint against 16 international banks and accuses them of predatory behavior against a dozen small American banks, which today have all disappeared.

“Substantial Losses”

Among the European banks under scrutiny are: UBS, Deutsche Bank, RBS, Barclays, Credit Suisse, HSBS, Rabobank, Lloyds Banking Group, West LB and Société Générale, the only French Bank inculpated. The FDIC also incriminates the British Bank Association, in charge of monitoring Libor share pricing in London. Two major American institutions are also under scrutiny: Bank of America and CitiGroup. By together manipulating the price at which banks lend to each other, particularly during the crisis as they revealed how unsound they were, these banks entailed “substantial losses” between 2007 and 2011 for 38 banks placed under the aegis of the FDIC, according to the FDIC, Washington Mutual and IndyMac Bank. As far as the FDIC is concerned, these big financial institutions have broken their contracts with the smaller banks which were forced to close. These contracts were made—including the valorization of rates—after the big institutions had previously rigged the Libor rate. The FDIC thus seeks compensation for the amount of losses these small banks suffered, in addition to extra damages for the violation of antitrust laws. Overall, it demands a fine of more than $1 billion, according to The Financial Times.

Only Freddy Mac and Fannie Mae, refinancing entities, have filed official complaints of this scale. Some banks were found guilty at an individual level by regulators. In 2011, UBS unraveled the scandal to the regulators in order to gain immunity but was fined 1.1 billion euros. Barclays eschewed legal prosecutions by paying £290 million in 2012 to American regulators in part. RBS followed Barclays’ steps in February 2013 and paid 450 million euros to the Commodity Futures Trading Commission and the American Department of Justice.

Only the European Commission has launched a series of fines. In December, it found five banks, including Société Générale, guilty of cartel-driven behavior, who were fined 1.7 billion euros. In total and globally, the different banks implicated in the Libor scandal have eschewed legal prosecutions by paying $6 billion in fines.