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The LIBOR Scandal and Barclays

September 4, 2013 | Posted In Business Litigation - Barclays, FINRA, Libor |

Cherry Hill New Jersey FINRA Attorney.

As Wall Street struggles to regain the confidence of the individual American investor, another scandal in the financial industry has exploded. According to recent news reports, the LIBOR rate (London Interbank Offered Rate) may have been manipulated by a number of big banks, including Barclays, Citigroup, and Bank of America. The LIBOR rate is used to determine the interest rate at which banks borrow money from other banks in London. The daily LIBOR rate is an average of interest rates submitted by major London banks is the key variable in determining the rate you pay on many financial products such as mortgages, student loans, and derivatives – in fact, $350 trillion in derivatives alone.

The LIBOR Rate and Problems at Barclays

At the end of June in 2012, Barclays was fined $200 million by the Commodity Future Trading Commission and $165 million by the US Department of Justice. Investigators found that Barclays traders had manipulated the LIBOR rate in order to bolster their financial rewards. Alternatively, from 2007 to 2012, Barclays artificially lowered their submitted interest rates in order to make their bank appear healthier than it actually was.

Watching the Watchers – Regulators or Enablers?

The emerging LIBOR scandal has led some commentators to conclude that regulators did little or to nothing to put an end to LIBOR rate manipulation. When Timothy Geithner was head of the Federal Reserve Bank of New York in 2008, he did little more than notify British authorities of certain irregularities associated with the LIBOR rate.

In light of the fact that Geithner did nothing about LIBOR rate manipulation when he became Treasury Secretary, this has led some to conclude that Geithner’s move wasn’t intended to put an end to the practice but rather to provide cover for himself. Geithner’s story is only one in a long line of stories involving regulators and government bodies looking the other way in the face of interest rate manipulation.

What the Future Holds – The Implications of the LIBOR Scandal

So, where does the LIBOR scandal leave investors, homeowners, credit card holders, and banks? At this point, it seems reasonable to think that the LIBOR scandal is not a local problem involving Barclays and the UK; rather, it appears as if the LIBOR scandal is global and systemic. At the very least, it’s likely that there will be more calls for regulation. Additionally, since LIBOR rate manipulation was used to prop up earnings on bonds and other investments, there are likely to be a large number of class-action lawsuits. Given the amount of money involved, some have suggested that we could see another TARP-style bailout, which is likely to have far-reaching financial consequence. Of course, if there is no liability for the banks involved, this won’t happen. At this point, however, only time will tell.

The lesson: human nature never changes. If rate manipulation or other fraud is possible, powerful insiders will do it. Bankers won’t become angels, nor will any other profession. Only structural changes, which make these actions impossible, will prevent their return.

Questions about Business Law and Consultative Legal Services

If you have questions about how the LIBOR rate scandal could affect your company or business, or your investment, contact Cherry Hill, New Jersey business law attorneys at Tobolsky Law today.

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