US banks fight back over Libor accusations

By Rosa M. Abrantes-Metz on September 5, 2012

Class action lawsuits before the US District Court for the Southern District of New York argue international banks colluded at the expense of investors, community banks, municipalities and investment funds. But the defendant banks are fighting back and have filed motions to dismiss claims on grounds the Sherman Antitrust Act and Commodity Exchange Act do not prohibit the alleged actions.

Plaintiffs will face additional hurdles in the form of US Supreme Court precedent and a potentially difficult calculation of damages involving counterparty payments for over-the-counter (OTC) derivatives, assuming litigation gets out of the gate and arguments are heard.

Felix Chang, a former counsel at Fifth-Third Bank and now professor at the University of Cincinnati College of law, likens the plaintiffs’ arguments to proving a negative “ a difficult task because everything relies on what the London interbank offered rate (Libor) should have been.

Research on Libor data seems to suggest some collusion, though. Rosa Abrantes-Metz, principal at the Global Economics Group and a professor at the New York University Stern School of Business, analysed data on Libor rates after The Wall Street Journal broke the story on possible manipulation in 2008.

Abrantes-Metz discovered Libor did not respond to changes in market conditions between August 2006 and August 2007, unlike the US federal funds rate. Furthermore, her data showed all of the big banks reported identical interbank lending rates to the third decimal point even after quoting different rates during the previous day.

“The Libor in that period of time showed patterns of rate-rigging and price fixing which are criminal charges under US antitrust laws,” Abrantes-Metz says.

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