WICHITA, Kan. The National Credit Union Administration this evening filed a civil suit against 13 international banks, including J.P. Morgan Chase, alleging violations of federal and state anti-trust laws by manipulation of interest rates through the London Interbank Offered Rate (LIBOR) system.
The manipulation of LIBOR, the benchmark for setting interest rates around the globe, resulted in a loss of income from investments and other assets held by five failed corporate credit unions: U.S. Central FCU, WesCorp FCU Members United FCU, Southwest FCU and Constitution Corporate FCU, NCUA alleges. Corporate credit unions act as bankers' banks that pool deposits and investments from the nation's 6,800 regular credit unions.
Among the other defendants in the suit are: Credit Suisse Group, Rabobank, Barclays Bank, Lloyds Banking Group, UBS, Royal Bank of Scotland, HBOS, Bank of Tokyo-Mitsubishi, Royal Bank of Canada and Societe Generale.
The failure of the five corporates is projected to cost NCUA $16 billion to resolve, which is being passed on as annual assessments to the nation’s credit unions. The credit union regulator has filed more than a dozen civil suits against Wall Street’s biggest banks, alleging JP Morgan Chase, Goldman Sachs, Barclays Capital, UBS, Credit Suisse and RBS Securities, and others sold the failed corporate faulty mortgage-backed securities that led to their demise.
“We have a responsibility to pursue recoveries through every available avenue against those who caused billions of dollars in losses to credit unions,” NCUA Chairman Debbie Matz said after the filing of today's suit. “Some firms were manipulating international interest rates in a way that cost the five corporates to lose millions of dollars. Just as we are doing in our other suits, we are seeking to hold responsible parties accountable for their actions.”
LIBOR is the average daily interest rate a group of leading financial institutions pay when they borrow from one another. The rate is set daily for 10 currencies around the world and affects interest rates on trillions of dollars of financial transactions of various kinds.
NCUA claims the defendants in today’s action individually and collectively gave false interest-rate information through the LIBOR rate-setting process “to benefit their investments that were tied to LIBOR, to reduce their borrowing costs, to deceive the marketplace as to the true state of their creditworthiness, and to deprive investors of the interest rate payments to which they were entitled.” The false information created the impression the defendant banks were borrowing money at a lower interest rate than they were actually paying.
More than 40 suits have been filed in relation to the LIBOR manipulation. NCUA is one of the first federal financial regulators to sue in this area.
In addition to the lawsuits, banks involved in the LIBOR manipulation have been under investigation by authorities in the United States and the United Kingdom. The investigating authorities have so far collected approximately $2.5 billion in penalties from three firms, UBS, the Royal Bank of Scotland and Barclays.