Why Your City Should Be Paying Attention to England's Latest Banking Scandal

Have you been following the recent Libor banking scandal with detached bewilderment? Well, your public officials should probably be paying close attention, because there's a chance it may have had a substantial impact on your city's finances.

A banking scandal out of England concerning the manipulation of the London interbank offer rate (Libor) by Barclays and other big banks has been making the news of late. We won't bore you with a detailed explanation of Libor, which is a measure of how much banks must pay to borrow money from one another in the short term, but this handy infographic can help explain the scandal.

What's important to know is that, "Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate," and many other municipalities, pension funds and hedge funds may follow their lead, reports Nathaniel Popper. 

According to Popper, "American municipalities have been among the first to claim losses from the supposed rate-rigging, because many of them borrow money through investment vehicles that directly derive their value from Libor. Peter Shapiro, who advises Baltimore and other cities on their use of these investments, said that 'about 75 percent of major cities have contracts linked to this.'"

"If the banks submitted artificially low Libor rates during the financial crisis in 2008, as Barclays has admitted, it would have led cities and states to receive smaller payments from financial contracts they had entered with their banks, Mr. Shapiro said."

"'Unambiguously, state and local government agencies lost money because of the manipulation of Libor,' said Mr. Shapiro, who is managing director of the Swap Financial Group and is not involved in any of the lawsuits. 'The number is likely to be very, very big.'"

 

Full Story: Rate Scandal Stirs Scramble for Damages

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