More than a dozen major financial institutions continued to experience fallout from the U.S. Department of Justice (“DOJ”) investigation of London Interbank Offered Rate (“Libor”) price-fixing when the Federal Deposit Insurance Corporation (“FDIC”) sued them late last week. The FDIC filed suit in the Southern District of New York on behalf of 38 banks as the receiver for 38 banks that failed during the 2008 global financial crisis, including IndyMac Bank FSB and Washington Mutual Bank. The Libor is one of the key benchmarks that affect the ability to borrow money, and the FDIC lawsuit claims that efforts to unlawfully fix the Libor increased borrowing costs for the failed institutions. Submissions designed to inflate the Libor may also have masked financial weaknesses among many of the world’s largest banks, contributing further to instability in the financial markets.
The lawsuit follows aggressive investigations and fines by U.S. and European regulators and U.S. prosecutors. Several major international banks have already paid massive fines and/or pleaded guilty in the United States to participating in efforts to rig or artificially inflate the Libor, an act that likely increased borrowing costs for unsuspecting consumers. The Commodity Futures Trading Commission (“CFTC”) imposed some of the largest fines. Banks were not the only victims. In a sprawling class-action lawsuit, cities, towns and other municipalities have theorized they suffered billions of dollars in financial losses due to the manipulation of the Libor, though a federal judge in New York dismissed many of the core civil claims last year – a ruling that will eventually be appealed to the Second Circuit if subsequent amended complaints do not survive.
While the impact of the Libor price fixing on the 2008 global financial crisis is not entirely clear, efforts to probe how the benchmark was established and hold large banks responsible will likely continue for years to come.