There could be a different type of bank crisis afoot. Banks currently under investigation for their part in the Libor interest rate manipulation scandal face some stiff penalties and fines, likely in the tens of billions of dollars.
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Entities from the US government to cities to insurors, investors, and lenders are bringing suits, claiming they were harmed by the tweaked rates.
The number of cases has been mounting over the last several months and it’s unclear just how many there will be. Barclays’ $450 million settlement with federal authorities was a catalyst for the suits.
The banks under investigation include Citigroup, JPMorgan, Bank of America, and others. Even though financial institutions like Charles Schwab are suing, it’s more likely they will reach some type of financial settlement.
That said, some are predicting huge damage awards despite the difficulty inherent in actually winning the litigation against the banks.
A July research report by Macquarie Research predicted the banks’ liability would ultimately be around $176 billion. It based this projection on the assumption that Libor was understated by .4% during both 2008 and 2009.
Others predict much tamer amounts—$47.5 billion is predicted by Keefe, Bruyette & Woods, Inc.’s analysts and Morgan Stanley predicts only $7.8 billion in possible payouts.
The banks are trying to get the suits dismissed on the basis that there is no proof that the banks colluded on the manipulation.
The Libor was named the world’s most important number
in 2009 by the British Bankers’ Association. Those four words are now showing up in the lawsuits against the banks.
It’s predicted that it will take years before the suits are resolved. Banks will likely be under pressure for some time. Significant layoffs can also be expected.