There seems to be no end to the legal woes for major global
) has filed a lawsuit against 9 major banks and British Bankers
Association (BBA) for their alleged role in rigging London
Interbank Offered Rate (LIBOR).
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The accused banks are
Bank of America Corp.
JPMorgan Chase & Co.
The Royal Bank of Scotland PLC
Deutsche Bank AG
Credit Suisse Group AG
) and Rabobank Group.
While filing the suit in the U.S. District Court in Manhattan,
Fannie Mae stated that it suffered losses of about $332 million
in interest rate swap transactions that were indexed to LIBOR and
lost billions of dollars on mortgage securities with coupon
payments based on the same benchmark rate. Hence, it is seeking
$800 million of compensation from the banks.
The banks have been accused of conniving to bring down LIBOR,
which resulted in Fannie Mae receiving lower payments on
LIBOR-related products. The lowering of LIBOR was beneficial for
the banks as it increased their capacity to charge higher
underwriting fees and obtain higher offering prices for financial
products at the cost of Fannie Mae and other consumers.
The case is similar to the one filed by
) in Mar 2013 against more than a dozen financial firms. Freddie
Mac had alleged that the banks and BBA colluded together to reap
profits from LIBOR manipulations from 2007 to 2010.
Manipulation of LIBOR by major financial institutions has
resulted in thorough investigations by regulatory bodies across
Europe, Asia and America. This has turned out to be a huge scam
with nearly $300 trillion of loans, mortgages, financial products
and contracts being linked to the tampered LIBOR.
Regulatory authorities in the U.S. and the U.K. have come down
hard on such unwarranted activities of banks including Barclays,
UBS, Rabobank and Royal Bank of Scotland. These banks have
reached an agreement by paying penalties of aggregately $3.6
billion. These banks also admitted their wrongdoings.
LIBOR is a widely accepted benchmark rate. Several financial
institutions, mortgage lenders and credit card agencies lay down
their own rates in relation to it. Derivatives and other
financial products worth about $350 trillion are connected to
LIBOR. Therefore, manipulation of the same will necessarily
undermine the importance of the rate and can have unprecedented