WASHINGTON (AP) — The Federal Deposit Insurance Corp. has
sued 16 big banks that set a key global interest rate, accusing them of
fraud and conspiring to keep the rate low to enrich themselves.
The
banks, which include Bank of America Corp., Citigroup Inc. and JPMorgan
Chase & Co. in the U.S., are among the world’s largest.
The
FDIC says it is seeking to recover losses suffered from the rate
manipulation by 10 U.S. banks that failed during the financial crisis
and were taken over by the agency. The civil lawsuit was filed Friday in
federal court in Manhattan.
The banks rigged the London interbank
offered rate, or LIBOR, from August 2007 to at least mid-2011, the FDIC
alleged. The LIBOR affects trillions of dollars in contracts around the
world, including mortgages, bonds and consumer loans. A British banking
trade group sets the LIBOR every morning after the 16 international
banks submit estimates of what it costs them to borrow. The FDIC also
sued that trade group, the British Bankers’ Association.
By
submitting false estimates of their borrowing costs used to calculate
LIBOR, the 16 banks "fraudulently and collusively suppressed (the LIBOR
rate), and they did so to their advantage," the FDIC said in the suit.
Citigroup
spokeswoman Danielle Romero-Apsilos, Bank of America spokesman Lawrence
Grayson and JPMorgan spokesman Brian Marchiony declined to comment.
Four
of the banks — Britain’s Barclays and Royal Bank of Scotland,
Switzerland’s biggest bank UBS and Rabobank of the Netherlands — have
previously paid a total of about $3.6 billion to settle U.S. and
European regulators’ charges of rigging the LIBOR. The banks signed
agreements with the U.S. Justice Department that allow them to avoid
criminal prosecution if they meet certain conditions.
The process
of setting the LIBOR came under scrutiny after Barclays admitted in June
2012 that it had submitted false information to keep the rate low.
A
number of U.S. cities and municipal agencies also have filed suits
against banks that set the LIBOR rate. They are seeking damages for
losses suffered as a result of an artificially low rate. Local
governments hold bonds and other investments whose value is pegged to
LIBOR.
In addition, government-controlled mortgage giants Fannie
Mae and Freddie Mac have brought similar suits against many of the
banks.
Under a change announced last July, the London-based
company that owns the New York Stock Exchange, NYSE Euronext, will take
over supervising the setting of LIBOR from the British Bankers’
Association. The changeover is scheduled to be completed by early next
year.
The FDIC asserted in its suit that the banks’ misconduct in
setting LIBOR caused "substantial losses" to the 10 U.S. banks that
failed. The amount wasn’t specified. The agency is seeking both economic
and punitive damages, to be determined by the court.
The other
banks named in the suit are Switzerland’s Credit Suisse, Germany’s
Deutsche Bank and Portigon, British banks HSBC and Lloyds, France’s
Societe Generale, Japan’s Norinchukin Bank and Bank of Tokyo-Mitsubishi,
and Royal Bank of Canada.
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