Banks Put the “Lie” in LIBOR

There have been at least 76 actions filed across the United States since 2011 relating to manipulation of LIBOR or the London Interbank Offered Rate for the U.S. dollar. Since August 2011, 71 of these actions have been transferred to a Multi-District Litigation in the Southern District of New York: In Re: Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262 (“In re Libor“). Because In re Libor encompasses so many of the civil cases brought by plaintiffs for claims relating to LIBOR benchmark manipulation, we will treat it as one case for purposes of our discussion of LIBOR. Unless otherwise specified, the allegations made are taken from the [Corrected] Fourth Amended Consolidated Class Action Complaint, available here. In this post, we focus on the alleged facts and identification of parties in In re Libor. In an upcoming post we will discuss the procedural posture of class certification of the various parties and the claims asserted.

Overview of How LIBOR Works

LIBOR is a daily interest rate relating to ten currencies for different ranges of maturity published by the British Bankers Association (BBA), a trade association. In this context, it refers specifically to the rate published for the U.S. dollar. It is a “benchmark” rate in that it is used to determine the interest rates for notes, futures, options, and other transactions. For example, a note with a variable interest rate might be calculated as the LIBOR rate plus a certain other percentage.

The BBA calculates LIBOR using submissions received by its agent Thompson Reuters from each of the sixteen members of a panel composed by the BBA, made up of banks in the London interbank money market for U.S. dollars. Each panel member-bank’s submission was a response to the following question from the BBA: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” In other words, each bank submits a prediction on what interest rate it would pay to borrow unsecured U.S. currency in the London interbank market. The BBA’s rules require the submission to be based on “that bank’s perception of its costs of unsecured funds in the London interbank market.” According to plaintiffs, this requires the banks to “independently exercise its good faith judgment each day about the competitive interest rate that it would be required to pay, based upon its own expert knowledge of market conditions, including supply and demand conditions and the panel bank’s own competitive posture as a borrower within the market for interbank loan funds.”

Thomson Reuters, on BBA’s behalf, calculates the LIBOR rate for each maturity by disregarding the highest four and lowest four submissions, and calculating the mean of the middle eight submissions. Thomson Reuters then publishes the calculated LIBOR as well as the individual rates that each bank submitted at around 11:30 am each business day. According to the BBA’s own rules, each bank’s daily submissions remain confidential before its publication by Thomson Reuters.

Overview of the Alleged Collusion

Plaintiffs allege that the panel-members colluded by each agreeing to lower the interest rates in their LIBOR submissions far below what each was actually paying to borrow unsecured U.S. currency. Plaintiffs offer several motives for the banks’ alleged collusion. For one, it was in each bank’s interest to report having to pay a lower rather than higher interest rate, because paying a higher interest rate would reflect poorer creditworthiness and thus a greater risk associated with that bank. Especially since no bank wanted to stand out as being associated with more risk than other banks in the market, each bank had all the more incentive to coordinate its LIBOR submissions with each other. Finally, Plaintiffs allege that the banks artificially lowered their LIBOR submissions in order to manipulate futures contracts for Eurodollars (U.S. dollars held in commercial banks outside the United States), the interest rates for which are tied to LIBOR.

Plaintiffs have offered proof of their allegations from several different sources, including instant messages and e-mails made public from various settlements by some of the panel-member banks with governmental authorities and other civil settlements; these communications show agreements by those responsible for LIBOR submissions to accommodate requests from internal and external swap traders and other panel member banks to set a bank’s LIBOR submission at a certain rate. These communications also show, according to plaintiffs, that the banks based their submissions on how they wanted to be perceived compared to each other, not on what actual interest rates each was paying to borrow U.S. Currency.


There are several different classes of plaintiffs that have sought class certification in In re Libor. The following is a brief description of the different types of plaintiffs that have sought class certification.

Over-the-Counter (“OTC”) Plaintiffs: generally consists of persons or entities in the United States who bought an interest rate swap or bond/floating rate note directly from a panel-member bank (or one of its affiliates) that required that panel-member bank to pay interest at a rate tied to the 1 or 3 month LIBOR rate.

Lender Plaintiffs: generally consists of lending institutions headquartered in the United States that originated, held, or purchased loans, or purchased or sold interests in loans tied to LIBOR between August 1, 2007 and May 31, 2010.

Exchange-Based Plaintiffs: generally consists of those who purchased or sold Eurodollar futures contracts or call options on Eurodollar dollars, or bought put options on them on the Chicago Mercantile Exchange on or between certain specified dates.


The panel-member banks during at least some of the relevant time period consisted of Bank of America, N.A., Barclays Bank plc, Citibank, N.A., Credit Suisse Group AG, JPMorgan Chase Bank, N.A., HBOS plc, HSBC Bank plc, Lloyds Bank plc, WestLB, UBS AG, Royal Bank of Scotland plc, Deutsche Bank, AG, Royal Bank of Canada, Société Générale S.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Rabobank U.A., The Norinchukin Bank. However, certain of these entities (or their related successor entities) have since settled and are no longer defendants, or are in the process of having settlements approved by the Court.

Interdealer brokers who Plaintiffs allege aided and abetted the panel-member defendants by assisting the banks in communicating their LIBOR submissions also were made defendants. These actors, which included ICAP plc, Tradition (UK) Limited, and Tullett Prebon plc are no longer parties to the case, however.

This post was written by John F. Whelan.

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