FDIC suit says big banks’ Libor manipulation caused Doral failure

FDIC suit says big banks' Libor manipulation caused Doral failure

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The Federal Deposit Insurance Corp. has filed a lawsuit against more than a dozen of the world’s biggest lenders, accusing them of contributing to the collapse of Puerto Rico’s Doral Bank by manipulating the benchmark Libor interest rate.

The collapse of the San Juan-based Doral was the biggest U.S. bank failure of 2015. The FDIC, its receiver, is seeking unspecified economic and punitive damages from 16 lenders, including Bank of America, Barclays PLC and Credit Suisse Group.

FDIC headquarters in Washington, D.C.

Bloomberg News

The antitrust lawsuit, filed Tuesday in Manhattan federal court, is the latest wrinkle stemming from the global Libor scandal, in which banks manipulated the London interbank offered rate tied to trillions of dollars of financial products to benefit their bottom lines at the expense of customers. Banks have already paid billions of dollars in fines, but probes and lawsuits continue.

The alleged conduct “caused substantial losses to Doral with regard to its loan portfolio and derivative holdings,” the FDIC said in the complaint. “Doral’s losses flowed directly from, among other things, the harms to competition caused by the fraud and collusion alleged in this complaint.”

The suit also names the British Bankers’ Association, which monitored Libor before the scandal erupted almost a decade ago.

Doral, Puerto Rico’s second-biggest mortgage lender until it was seized, was brought down by historical accounting errors and a recession in the U.S. territory, according to court filings at the time. The failed bank, with deposits of $4.1 billion and assets of $5.9 billion, had 26 branches in Puerto Rico, Florida and New York. Popular Inc., also based in San Juan, assumed the bulk of Doral’s assets and deposits.

According to the FDIC, the banks’ alleged manipulation deterred innovation and injected false information into the market. The agency specifically claims the Libor manipulation stunted competition in the market for U.S.-dollar interest rate benchmarks and directly harmed Doral.

The FDIC estimated that the bank’s failure would cost the insurance fund $749 million.

Doral “suffered direct injury because it was forced to participate in a non-competitive and non-transparent market for interest-rate benchmarks,” the FDIC said in the suit.

The press offices for Bank of America, Credit Suisse and Barclays didn’t immediately return a call for comment. A message left with the British Bankers’ Association also wasn’t immediately returned.

Bloomberg News

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