FDIC sues 9 European banks over Libor

The US Federal Deposit Insurance Corporation is suing nine European banks for allegedly contributing to the collapse of 39 US banks that had a collective value of more than $440bn (€375.6bn).

The European banks manipulated the London Interbank Offered Rate (Libor) rate benchmark, which led to the downfall of the US banks, reported British newspaper The Times on August 18.

A similar court case has already failed in suing over the Libor-rigging scandal after it was thrown out of the federal court in New York last year.

The judge argued that the court lacked the authority to make a ruling.

The corporation, which oversaw the winding down of the US banks, has reportedly accused Barclays, Lloyds Banking Group, Royal Bank of Scotland, Deutsche Bank and UBS of colluding to keep Libor down for more than two years until at least the end of 2009.

The European banks acted with the British Bankers’ Association (BBA), deceiving the market about their financial health, the lawsuit reportedly claims.

The case has been taken to the High Court on behalf of the 39 US banks that had to be rescued during the financial crisis.

The FDIC claims the European banks gave artificially low estimates to the Libor rate-setting process between 2007 and 2009 making them seem more prosperous than they actually were.

Spokespeople for BBA, Lloyds, RBS, Barclays and Deutsche Bank declined comment when contacted by the Times.

The UK’s Financial Conduct Authority (FCA) recently announced plans to scrap Libor, traditionally used for pricing financial products, by 2021.

“Financial firms are left more confused when looking to new deals whether to avoid any variable interest rates linked to Libor if it will extend past the phase-out date, and if so, what the alternative might be, or if these will be updated automatically,” says Selwyn Halbertsma, director business consulting at Synechron.

“A key part of transitioning will be to prioritise benchmarking transparency to avoid future scandal as seen with Libor. Guidance from the regulators will be key in preparation for the transition,” he adds.

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