Home > Economy, Ethics > Fox Hunting: Investigators Look to Banks on Possible Multi-Trillion Libor Collusion

Fox Hunting: Investigators Look to Banks on Possible Multi-Trillion Libor Collusion

April 14, 2011

I learned many years ago that if you want to know what goes on in our world – FOLLOW THE MONEY. Nothing surprises me after learning about the massive fraud that went on with the largest investment banks that preceded the 2008 global collapse. Now we are seeing more of the same. This breaking story tonight might roil the markets. I am putting together a couple quick sources to get a full picture of what is going on.

Note: The Libor Rate is the London Interbank Loan Rate. Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the U.K.

WSJ Breaking News tonite: U.S. investigators are examining whether some of the world’s biggest banks colluded to manipulate a key interest rate before and during the financial crisis, affecting trillions of dollars in loans and derivatives, say people familiar with the situation.

For the past year, law-enforcement officials have been investigating whether the U.S. and European banks understated their own borrowing costs, which are used to calculate the London interbank offered rate, or Libor. The investigators are now looking into whether the banks effectively formed a global cartel and coordinated how to report borrowing costs between 2006 and 2008.

The inquiry, led by the U.S. Justice Department and Securities and Exchange Commission, is analyzing whether banks were understating their borrowing costs. At the time, banks were struggling with souring assets on balance sheets and questions about liquidity. A bank that borrowed at higher rates than peers would likely have signaled that its troubles could be worse than it had publicly admitted.

Roughly $10 trillion in loans and $350 trillion in derivatives are tied to Libor, which affects costs for everything from corporate bonds to car loans. If the rate was kept artificially low, borrowers likely weren’t harmed, though lenders could complain that the rates they charged for loans were too low. Derivatives contracts could be mispriced because of any manipulation of Libor.

According to people familiar with the yearlong probe, U.S. regulators are focusing on Bank of America Corp., Citigroup Inc. and UBS, among others, and have sent subpoenas to those banks. The three banks declined to comment.

Inside the Justice Department, the case is being pursued by antitrust and antifraud prosecutors, said people familiar with the situation. Criminal antitrust investigations typically focus on collusive behavior such as price-fixing and bid-rigging. A number of the banks involved in the probe have hired high-profile corporate-defense law firms.

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LOS ANGELES (MarketWatch) — U.S. law-enforcement officials have launched an investigation into possible collusion among U.S. and European banks to fix the London interbank offered rate, or Libor, according to a Wall Street Journal report citing unidentified people familiar with the situation. The report said the probe, conducted over the past year, is looking at whether the banks acted in concert to understate their borrowing costs, used to calculate Libor, during 2006-2008. The report said officials had sent subpoenas to Bank of America Corp., Citigroup Inc. and UBS AG, among others.


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