Warnings in 2008, More Banks Under Libor Investigation

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Barclays, the United Kingdom’s  no. 2  bank,  admitted  that at the request of traders at the bank and other banks,  that its employees regularly manipulated Libor between 2007 and 2009  Barclays agreed to pay $453 million to U.S. and U.K. regulators.

Morgan Stanley’s calculation that at least ten additional banks could be fined between $420 and $651 million by regulators.  Banks that have disclosed that they are being investigated include Deutsche Bank, Royal Bank of Scotland, Credit Suisse, Citigroup, UBS and JPMorgan Chase.

Ten trillion loans worldwide use Libor as a benchmark for determining rates for loans. credit cards and mortgages in the United States. In addition the same labor rate is  used as a basis for trading  $350 trillion in derivatives worldwide.  The  manipulations would have affected  pension funds and local governments to name a few that would have purchased derivatives in an attempt to protect against interest rate changes.

It could be assumed that banks that are not  quickly settling with the regulators will pay a premium in fines.  Barclays may have received preferential treatment because they immediately responded and cooperated at the request by regulators and settled the fine expediently.   Other banks may end up paying 30% more  and higher fines after the UK Serious Fraud Office completes its investigation.

In May of 2008 , Treasury Secretary Tim Geithner, New York Fed at that time,  raised the subject at a meeting of the President’s Working Group on Financial Markets. He also made suggestions to  Mervyn King, the governor of the Bank of England which included  to reduce the incentive of banks to misreport the interest rate.

The British Parliament has recently held hearings into the Barclays’ Libor scandal.   The U.S. Justice Department already disclosed in February that it is conducting a criminal investigation into alleged manipulation of Libor.  A class action suit is in the works for pensions in Ohio.  U.S. Congressional Hearings have not been set.