Regulators are investigating potential Libor-related fraud at other big banks on the panel, meaning additional settlements are probably in the works. Researchers at Keefe Bruyette & Woods estimate the banks involved will have to cough up between $30 billion and $50 billion to settle all of the fines, penalties and civil cases.
“It’s a manageable expense considering the size of these banks,” said analyst Frederick Cannon at Keefe Bruyette & Woods. “But this is going to give a big impetus to a lot of the regulations concerning capital markets activities generally — a stronger Volcker rule, moving all derivatives to exchanges.”
The Washington Post’s Zachary Goldfarb explains what Libor is and why it’s in the news.
What is the Libor?
It is too soon to gauge the regulatory impact of the Libor investigations. Regulators on both sides of the Atlantic are debating alternatives to Libor, but there are no definitive plans to change the rules governing the rate. Long-term regulatory implications are difficult to pin down, much like the full scope of the civil lawsuits. Members of Congress have raised concerns about whether banks would need taxpayer assistance to compensate victims of the Libor scheme. U.S. Federal Reserve Chairman Ben S. Bernanke, speaking before the Senate banking committee, said that if the central bank “can contribute to a global settlement as we did in the case of the [mortgage] servicers, we would, of course.”
Federal Financial Analytics’ Shaw Petrou said a global settlement would be difficult to achieve given the number of agencies and entities involved. Moreover, such a settlement would do little to stem the wave of civil suits.
A number of the class-action suits hinge on the claim that banks violated antitrust laws by conspiring to fiddle with the rate. E-mails between traders released by Barclays could be used as evidence of a price-fixing conspiracy.
Lawyer Richard Holwell of Holwell Shuster & Goldberg said breach of antitrust laws, namely the Sherman Act, will probably serve as the basis for a majority of suits filed in the coming months.
“The hurdles in proving damages are a lot lower under the antitrust analysis than they are under a securities fraud analysis,” said Holwell, a former judge in the Southern District of New York.
Berkshire Bank is taking a different approach by alleging the banks violated New York state’s common law of fraud. Plantiffs, in that instance, would have to prove the banks intentionally rigged the rate.
Columbia University law professor John Coffee anticipates there will be a few large class-action suits but expects more individual civil cases brought by mutual funds and investment banks.
“Mutual funds economize on their operating costs and would love to settle rather than litigate for four or five years,” he said. “If one of these cases was litigated on a full-scale basis, the plaintiff might have to incur costs of well over $10 million to bring the case to trial.”