Good News: LIBOR suit moves forward
It was hard week for Good News, but I did manage to find a few bits.
Nearly four years ago, I told you about an emerging bank scandal involving what's called LIBOR, the London Inter-Bank Offered Rate. (Or Offer or Offering or Overnight, depending on who you ask.) It's derived daily from the estimates of a consortium of 18 international banks as to what interest rate they think they will pay for the overnight loans they take out from other banks and so by combining these estimates into one figure is supposed to serve as a measure of the actual market cost of such loans.
It's an important figure because it provides the baseline for the interest rates on a variety of other loans and transactions. It directly affects around $10 trillion in loans and it indirectly affects $800 trillion in economic activity. The influential finance magazine The Economist called it "the most important figure in finance."
And nearly four years ago it emerged that the banks, or least least a sufficient number of them, had been manipulating the rate for years to their own profit.
The scandal started with Barclay's and spread out from there. In the years since, about a dozen financial houses have paid almost $9 billion in fines to resolve government investigations by various nations around the world.
What's relevant here is that were also suits by investors who charged that by cheating to depress the LIBOR rate, the banks had cheated them by depressing their returns on investments pegged to the rate. In 2013, a US District Court dismissed the suits, saying the investors had failed to show that they were harmed in a way that would permit them to sue under US antitrust law.
So what's the good news? A couple of weeks ago, the 2nd Circuit Court of Appeals overturned that decision and said the suits can proceed, meaning that 16 of the world's biggest banks - including Bank of America, JPMorgan, and Citigroup - are still on the hook for the losses they caused by their unrelenting drive for profit.
The ruling, as one analyst put it, was "far from a home run" because the District Court could still look to dismiss the case on other grounds, but for the moment, enjoy the Good News of the sight of bankers sweating.
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