|The Federal Deposit Insurance Corporation is suing 16 of the world’s banks, including U.S. banks Bank of America, Citigroup and JPMorgan, for allegedly manipulating the London interbank offered rate (Libor). The FDIC claims that the banks illegally influenced Libor rates from 2007 to 2011, according to Bloomberg.
Why the FDIC is Stepping Up on Behalf of 38 Failed Banks
The FDIC is most commonly known to consumers as the organization that insures their bank deposits. But another role of the corporation is to oversee banks in receivership — that is, banks that have failed.
In the suit, which was handed down on Friday, the FDIC is acting on behalf of 38 failed or defunct banks, including Washington Mutual, saying that the alleged rate-fixing cheated these banks out of millions and played a role in their failure, according to CNN Money.
According to the complaint filed by the FDIC, these failed banks “reasonably expected that accurate representations of competitive market forces, and not fraudulent conduct or collusion,” would determine the rates, according to Bloomberg.
Investment Banks Could Pay up to $100 Billion Over the Next Decade Over Fixed Rates
This isn’t the first time banks have been accused of artificially influencing Libor rates. In December 2013, the European Union fined eight banks $2.3 billion for manipulating rates. These included two U.S. banks, JPMorgan Chase and Citigroup, both of which are also named in the FDIC’s suit.
According to Bloomberg, financial institutions have already paid out $6 billion over Libor manipulation cases in the United States and Europe. These fines could continue to climb; The Wall Street Journal cited a report by analyst firm KBW, estimating that “global investment banks could be on the hook for almost $100 billion over the next decade in civil litigation costs tied to allegations of foreign-exchange markets rigging, interest rate manipulation, and soured mortgages.”
But even that number pales when compared to the $300 trillion in securities worldwide that are affected by Libor rates.