Prosecutors have been poring over documents related to the actions for two years. What they seem to have discovered is that in the wake of the 2008 financial-industry collapse, employees at large banks were underreporting the interest rates their banks were paying to borrow money from other banks.
This partly bolstered the banks’ profits and made the banks seem to be better credit risks. However, it also hurt pensions and other institutions, which were using the LIBOR rate to offset risks in their own portfolio. Some of those institutions are now suing the banks.
Several state attorneys general are also investigating the actions. In the past, the AGs have sometimes worked together to get settlements, such as the 1998 agreement by the major tobacco companies to pay the states $206 billion over 25 years.
Documents released by the New York Federal Reserve show that US regulators were concerned about irregularities with the LIBOR rate setting. US Treasury chief Timothy Geithner, then head of the New York Fed, wrote to British regulators urging them to take action to correct the situation. Apparently little was done.
The LIBOR rate is determined when banks call the British Bankers’ Association to report what they paid to borrow large sums of money, ranging from overnight to one year. The rate is set at 11 a.m. each weekday and published by Thomson Reuters.