International LIBOR Rate Manipulation

July 04, 2018

International LIBOR Rate Manipulation

A lawsuit claiming that someone has been mislead or taken advantage of is not an uncommon occurrence; but when the defendants are some of the worlds biggest banks - and the results are $9 billion dollars of retribution - global business will feel the effects. In an article from Bloomberg, Bob Van Voris gives you a real sense of the how the banks manipulated the market to skew the interest rate benchmark, and effectively help the banks in the long run.

By using Libor-tied investments including asset swaps, collateralized debt obligations and forward rate agreements, these large banks minimized the amount of money they had to pay on investments that were linked to their own benchmarks. While some argue first occurred in the year 2007, sixteen of the worlds largest banks, including JP. Morgan and Citigroup Inc. today face antitrust lawsuits.

Although Van Voris appears to tends to lean to the banks' side, it is arguably clear that some wrongdoing occurred and some banks consciously manipulated a power-imbalance to effectively increase their profits while hurting the so-called little guy. Here, argues although the benchmark was clearly altered in favor of the banks, the cases’ prosecution may struggle to prove how they were wrongly affected in the long run.

It’s an interesting case to compare this situation to the gold market and how it was largely affected in the past few years, e.g. by China and other world markets. Some believe that speculators saw a bull market for precious metals, thereby leading to an increase in activity. After a huge collapse, where gold went from nearly $1900/ozt in 2011 to almost $1100/ozt in 2014, it was clear the market wasn’t nearly as strong as these investors thought.


The appeals court overturned a 2013 ruling by U.S. District Judge Naomi Reice Buchwald who said the investors had failed to show that they were harmed in a way that would permit them to sue under U.S. antitrust law.” (Bob Van Voris – Bloomberg)


The Supreme Court of the United States

The SCOTUS, likely where this case is headed.

Jarringly, this is an ongoing occurrence in the business world, where no matter what certain large banks do, they seem to be able to sweep everything under the rug.


The Libor scandal involves big banks and investors in a lawsuit where investors claim that these major banks have been suppressing Libor (rates) to increase their earnings and prop up their finances to appear artificially healthy.

What impact might a future ruling on this case have? Well, requiring banks pay full and punitive damages to investors might bankrupt some of the worlds’ financial institutions. In turn, this would affect a significant challenge to everyone who might need to use an ATM, not just those specific investors who are claiming wrongdoing on the part of the banks.

Like these banks, gold markets appeared to be on the rise, and the public was reacting to a steady increase in price. The Libor benchmark also has a large effect on common interest rates, and how gold would be viewed as a commodity to an investor (higher interest rates tend to decrease the price of gold).

It is of the utmost importance that we don’t allow banks to set the rates thusly, i.e. purely of benefit to themselves. Hopefully, we can recognize the risk of downfall that arises when we allow upset investors to win. With that in mind, is their really either fair or just? Aside from what would ultimately lead to the collapse of some of the worlds largest banks, a ruling in favor of the plaintiffs would set a precedent for allowing investors to possibly sue anytime they felt they were mislead, not just when a fiduciary duty was involved.

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