Mendocino County, following behind a string of California cities and counties, filed a lawsuit in U.S. District Court Northern District of California against Bank of America Corp., Barclays Bank PLC, Citigroup Inc. and more than a dozen other banks over manipulation of Libor, a crucial rate that banks use to loan money to each other.
Government entities around the world have been filing suits over the manipulation that cost them billions of dollars during the economic meltdown between 2007 and 2011. Eight California entities, including the counties of San Diego and San Mateo and the city of Riverside, filed suit in January. Sonoma County, the Regents of the University of California and San Diego Association of Governments sued in June.
The number of litigants had climbed to a dozen by the time Sacramento County sued in July. The lawsuits allege violations of antitrust laws, negligence and unjust enrichment.
Libor, the London interbank offered rate, is based on a survey commissioned daily by the British Bankers’ Association. It asks lenders to estimate how much it would cost to borrow money from each other in 10 different currencies. The figures are used to set interest rates for more than $300 trillion of securities and loans worldwide, including interest rate swaps, which government borrowers use to hedge interest-rate payments to investors on variable-rate municipal bonds.
Libor was considered sacrosanct by investors and the discovery in March 2011 that its numbers were a sham gave new insight into the financial distress that froze markets and nearly tanked the world economy. By suppressing Libor, banks increased their own profits at the expense of everyone else in the world.
Institutions handling mortgages, student loans, financial derivatives and a host of other financial products rely on Libor for calculating rates. After the story broke, sources came forward to say the Libor manipulation had been going on since at least 1991.
Mendocino County calculates that it may have lost $800,000 on investments between 2008 and 2010 because of Libor manipulation. An estimated 70% of the county’s investment pool, which ranged between $150 million and $220 million, was in Libor-related investments that paid lower returns than they should have.
U.S., British and Swiss regulators made UBS, the largest bank in Switzerland, pay $1.5 billion in December 2012 for rigging the rates and Barclays was dinged for $450 million in June of that year. The Royal Bank of Scotland PLC was forced to cough up $612 million, ICAP PLC paid $87 million and Rabobank ponied up $1 billion.
But critics consider the penalties miniscule compared to the profits banks raked in, and the lack of criminal prosecutions and sanctions an acknowledgment of business as usual.