Banks may have altered rates of interest, says SEC

An ongoing investigation by the Securities and Exchange Commission and the Justice Department may show that banks from B of A to Citigroup and UBS colluded to manipulate the London Interbank Offered Rate of interest (LIBOR) in their favor, reports the Wall Street Journal. LIBOR is the interest rate banks get when borrowing money from other banks. This rate applies to a wide array of financial goods, from car loans and adjustable rate mortgages to corporate bonds and more. Article resource – Banks under SEC antitrust investigation for rate manipulation by MoneyBlogNewz.

London Interbank Offered Rate of interest collusion massive investigation

Some officials believe the borrowing costs were understated by banks to benefit a global banking cartel that is a secret. An investigation was started due to this. Between 2006 and 2008, it is anticipated that the LIBOR rates of interest started to be manipulated. If banks that were secretly struggling with bad debt and liquidity had reported borrowing at higher rates of interest then peers, the plight would have been revealed to the public.

Insiders point out there is only a couple prosecutors handling the LIBOR collusion case. These consist of antitrust and anti-fraud prosecutors. All of the investigators are looking for signs of collusion. Price fixing is one of these. Without evidence in email form or insider testimony, corporate collusion cases are extremely hard to prove.

James Rill, the previous assistant attorney general of the Justice Department’s Antitrust Division, told the Wall Street Journal that the prosecution will ideally need the assistance of at least two witnesses or hard evidence to make collusion charges stick.

'Remarkably similar costs’ to be seen

In 2008, a study conducted by the Wall Street Journal found that financial institution borrowing costs remained “remarkably comparable,” despite the truth that each financial institution faced different kinds of financial trouble. In the first quarter of that year, the 3-month borrowing rates for 16 banks remained within a 0.06 percentage-point range, compared to the average LIBOR of 3.18 percent.

The Bank for International Settlements economists didn’t understand. They assumed manipulation in the LIBOR. According to the economists, banks impact the LIBOR. A huge change would be noticed if the banks colluded.

How much damage will come from a class action suit?

The LIBOR collusion may be proven by the Justice Department and Securities and Exchange Commission. If this is the case, then the private plaintiffs hharmed by rate of interest manipulation might start putting together class action lawsuits. Michael Volkov, former Justice Department antitrust lawyer, claims that the plaintiffs would get triple the normal charges if they win.

Citations

Bankrate

bankrate.com/rates/interest-rates/libor.aspx

Investopedia

investopedia.com/articles/economics/09/london-interbank-offered-rate.asp

Wall Street Journal

online.WSJ.com/article/SB10001424052748704547804576261120293347088.html

Wikipedia

en.wikipedia.org/wiki/Variable-rate_mortgage

A LIBOR primer

youtube.com/watch?v=WnA3RKW8tfY&feature=youtu.be