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March 14, 2014 9:37 pm
The FDIC said it was acting on behalf of 38 failed banks, which it said lost money because of the way the largest international banks are alleged to have distorted the benchmark interest rate to hide their weak financial position during the crisis or to make money on derivatives trades.
At least 10 authorities around the world are investigating as many as 20 financial institutions. Rabobank was the fifth company to settle the allegations last October – paying more than $1bn – following Barclays, UBS, Royal Bank of Scotland and ICAP.
The FDIC is the US regulator charged with winding down failing banks. It often looks to recover losses through the courts and is looking for damages of about $1bn, according to one person familiar with the matter.
The banks closed by the FDIC range from small community banks to some of the largest casualties of the financial crisis such as IndyMac and Washington Mutual.
The FDIC said they suffered losses on various financial instruments, such as interest rate swaps, that were tied to Libor because of “fraudulent and collusive conduct [which] artificially biased the competitive process for financial products that paid cash flows determined by [Libor]”.
It is only the latest in a series of private and government lawsuits against the panel of banks, which were supposed to submit a realistic rate at which they could borrow money.
Fannie Mae and Freddie Mac, the government-controlled mortgage companies, have previously sued nearly a dozen banks and the British Bankers’ Association for allegedly causing them to suffer hundreds of millions of dollars in losses.
The FDIC also included the BBA, which published Libor, alongside Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Lloyds, Société Générale, the Norinchukin Bank, Royal Bank of Canada, Royal Bank of Scotland, the Bank of Tokyo-Mitsubishi UFJ and WestLB.
Future lawsuits are likely given the expansion of the global investigation into foreign exchange trading, adding to the vast litigation burden afflicting many of the world’s big banks.
The FDIC’s cases also represent the latest round of fighting between the government and JPMorgan Chase over the carcass of WaMu. JPMorgan acquired the bulk of WaMu during the financial crisis but later argued with the government over the extent of legal liabilities it took on.
In the new FDIC lawsuit, JPMorgan is being sued for interest rate swaps it sold to WaMu. Bear Stearns, also acquired by JPMorgan during the crisis, is also being sued.
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