Schwab Sues Bank of America, Citigroup for Manipulating LIBOR Rates; IMF Notes that LIBOR Underpins $400 Trillion in Financial Derivatives

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Courtesy of Mish 

Investment News reports Schwab sues banks for manipulating Libor rates.

Charles Schwab Corp., the largest independent brokerage by client assets, sued Bank of America Corp., Citigroup Inc. and other banks claiming they manipulated the London interbank offered rate, or Libor, starting in 2007 in violation of U.S. antitrust law. 

The banks conspired to depress Libor rates by understating their borrowing costs, thereby lowering their interest expenses on products tied to the rates, according to the lawsuit filed Aug. 23 in federal court in San Francisco, where Schwab is based. 

The banks “reaped hundreds of millions, if not billions, of dollars in ill-gotten gains,” Schwab wrote. 

In separate suits in April, three European asset-management firms and the Carpenters Pension Fund of West Virginia sued the banks claiming they manipulated Libor. U.S. and U.K. officials are cooperating in a probe of possible Libor manipulation, a person close to the investigation said in March. 

The Schwab suit seeks unspecified damages, which may be tripled under antitrust law. It also includes claims for racketeering and securities fraud.

Did the banks manipulate LIBOR? Of course they did. Proving it may be difficult. 

LIBOR stands for London Interbank Offered Rate. It is the rate at which banks would lend to each other. 

LIBOR is a rate at which banks say they would lend. However, it can easily be manipulated because it does not represent real transactions. 

Previous LIBOR Manipulation Charges 

Wikipedia describes previous LIBOR Allegations nicely. 

On Thursday, 29 May 2008 the Wall Street Journal (WSJ) released a controversial study suggesting that banks may have understated borrowing costs they reported for LIBOR during the 2008 credit crunch. Such underreporting could have created an impression that banks could borrow from other banks more cheaply than they could in reality. It could also have made the banking system or specific contributing bank appear healthier than it was during the 2008 credit crunch.

For example, the study found that rates at which one major bank "said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data."

To further bring this case to light, the Wall Street Journal released another article dealing with this matter titled "U.S. Probe Presents Dilemma over Libor" on Friday, March 18 2011. The article stated that regulators are focusing on Bank of America Corp., Citi-group Inc. and UBS AG. Making a case would be

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