US sues 16 banks that set Libor

The Federal Deposit Insurance Corp launched legal proceedings against 16 of the world's largest banks yesterday, on accusations of cheating dozens of other now defunct banks by manipulating the Libor interest rate.

According to FDIC, the global financial institutions broke certain swaps contracts they had entered into with the now-closed banks, by separately colluding to rig the Libor rate to which the contracts were tied.

A number of the lenders accused in the lawsuit, including Barclays Plc, had already paid around $6 billion to resolve US and European authorities' charges that they worked to manipulate benchmark interest rates.

They had also been sued by investors and others who claimed they suffered monetary losses due to manipulation.

Though many of those claims that a federal judge dismissed last March were based on antitrust law, the judge had yet to rule on cases that relied on the "breach of contract" theory used by the FDIC.

Reuters quoted Daniel Brockett, a lawyer with Quinn Emanuel Urquhart & Sullivan who had brought other cases against banks over Libor manipulation, that these looked like claims that were going to have a much better chance with the court.

The banks rigged the London interbank offered rate, or Libor, from August 2007 to at least mid-2011, according to the allegations (See: Libor rates under 'fixing' investigation in UK).

The Libor is set by a British banking trade group every morning after the 16 international banks submit estimates of what it cost them to borrow.

The trade group, the British Bankers' Association has also been sued by the FDIC.

By submitting false estimates of their borrowing costs used to calculate Libor, the 16 banks "fraudulently and collusively suppressed (the Libor rate), and they did so to their advantage," the FDIC said in the suit.

Four of the banks, the UK's Barclays (Libor list exposes top Barclays executives)

Royal Bank of Scotland (RBS close to settlement over Libor fixing charges with US, UK authorities),

Switzerland's biggest bank UBS (UBS to pay £940 million to settle Libor manipulation charges) and Rabobank of the Netherlands - had earlier paid a total of about $3.6 billion to settle US and European regulators' charges of rigging the Libor.

The lenders entered into agreements with the US justice department that allowed them to avoid criminal prosecution on meeting certain conditions.

A change announced last July, would see the London-based company that owned the New York Stock Exchange, NYSE Euronext, take over supervision of the setting of Libor from the British Bankers' Association.

The changeover is scheduled for completion by early next year.