(Boise) – Attorney General Lawrence Wasden says Idaho has joined a $100 million nationwide settlement against two companies investigated for manipulating a key international benchmark interest rate.
Wasden announced Monday that Idaho and 44 other states resolved an investigation into Barclays Bank PLC and Barclays Capital Inc. The investigation focused on Barclay’s role in alleged fraudulent and anticompetitive manipulation of LIBOR, a London-based interest rate that affects financial instruments valued worth trillions of dollars and has widespread impact on global markets and consumers, Wasden said.
Idaho is expected to receive an estimated $1 million in restitution, Wasden said.
Idaho entities that will be eligible for restitution include the Idaho Housing & Finance Association, the Idaho National Engineering & Environmental Labs Employee Retirement, the Idaho State Building Authority and the Public Employee Retirement System of Idaho. Wasden said each entity will be contacted and advised on eligibility and guidance for obtaining restitution under the agreement.
“London and Wall Street may seem very far away from Idaho cities like Jerome, Cottonwood and Salmon,” Attorney General Wasden said. “But the manipulation of LIBOR had a negative effect on local governments and non-profit organizations all across the state.”
LIBOR – an acronym for London Interbank Offered Rate – is a benchmark interest rate that determines that rates at which one bank can receive a loan from another LIBOR submitting bank. LIBOR rates are determined each day when a group of major banks submit the rate at which they could borrow from other banks.
There are LIBOR rates for 15 different maturities in 10 currencies. Typically, a low LIBOR rate indicates a strong financial position or creditworthiness of that bank, which makes loans to that bank less risky.
LIBOR is used to establish interest rates on all types of loans worldwide, which means the rate can impact municipal financial investments and bonds, adjustable rate loans, mortgages and student loans.
The investigation by a group of 45 State Attorneys General revealed that Barclays manipulated LIBOR in two different ways. First, during the financial crisis of 2007-08, Barclays’ managers frequently told LIBOR submitters to lower their LIBOR settings to avoid the appearance that Barclays was in financial difficulty and needed to pay a higher rate to borrow money than competitors. LIBOR submitters complied.
Barclays used a separate strategy to manipulate LIBOR at various times starting as early as 2005 and stretching as late as 2009. During this period, Barclays traders asked Barclays’ LIBOR submitters to change LIBOR settings to benefit trading positions, and at times submitters agreed. At times, those requests came from traders outside the bank, and Barclays traders agreed to pass them along to Barclays’ submitters, creating a system of collusion with other banks.
Barclays also believed that other banks’ LIBOR submissions likewise did not reflect their true borrowing rates, and that therefore, published LIBOR did not reflect the cost of borrowing funds in the market as it was supposed to do.
Government entities and nonprofits across the country were defrauded of millions of dollars when they entered into swaps and other investment instruments with Barclays without knowing that Barclays and other banks on the U.S. dollar-LIBOR setting panel were manipulating LIBOR and colluding with other banks to do so.
Under terms of the settlement, government entities and nonprofits that entered into LIBOR-linked swaps and other investment contracts with Barclays between 2005 and 2010 will be notified if they are eligible for restitution. A settlement fund of $93.3 million has been established for those entities.
Barclays is the first of several USD-LIBOR-setting panel banks under investigation by the State Attorneys General to resolve claims. Barclays fully cooperated from the outset. The investigation into the conduct of several other USD-LIBOR-setting panel banks is pending.
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