The Little Bank That Could: Suing 16 Global Banks

A small and relatively unknown New York bank announced on Monday it had filed a class action suit against 16 of its much bigger global counterparts. The complaint says the Berkshire Bank’s business was greatly damaged as a result of the LIBOR interest rate scandal.

It says LIBOR was manipulated to such low rates, it was impossible to stay afloat, nevermind remaining profitable. Is this the first of many lawsuits that will be filed as a result of the international scandal? Most analysts agree it is.

The Berkshire Bank has 11 branches in two northeast states, New York and New Jersey. Its assets are approximately $881 million. The suit says not only is Berkshire Bank suffering the repercussions, but that other banks of similar size were damaged, as well.

LIBOR

Up until several weeks ago, few had even heard of LIBOR; these days, even those most uninterested in the goings-on in the banking and credit sector have found themselves educated on the London Interbank Offered Rate. It’s historically been used to determine daily rates on more than $10 trillion in loans around the world. Those loans include small business loans, mortgages and even credit card interest rates.

Where’s the damage to Berkshire Bank? The suit outlines the results of these manipulations to Libor by saying many consumers benefited from the wrong interest payments, which resulted in profit losses. One reason the bank opted to file ahead of other similar sized banks are new concerns that some executives could find themselves being charged on a criminal level, which would make it more difficult to recoup losses.

Covering Penalties

At least two British banks have admitted to various illegal manipulations, including Barclays and HSBC. The former has put aside $700 million in anticipation of hefty fines, legal expenses and other costs while HSBC has put aside slightly more than $453 million to cover penalties both in the U.K. and the U.S.

HSBC’s CEO, Stuart Gulliver, said on Monday that his bank has many shortcomings and those shortcomings have caused shame and embarrassment for him personally and his bank as a whole. He admits his bank’s shortcomings in money laundering checks and balances are both “shameful and embarrassing” U.S. lawmakers have traced various paths the bank allowed to be forged, including funneling money into Mexico.

Triple Damages

Is this lawsuit from a smaller bank relevant and do the larger banks have any reason to lose sleep over a lawsuit such as this? Hannah Luise Buxbaum, the interim dean of the law school at Indiana University, said the lawsuit indeed serves as a threatening shadow over each respective bank’s shoulders. There’s also a bigger consideration: U.S. law allows for damages to be tripled if defendants are found guilty of violating anti-trust laws. It’s not likely this would be a viable judgment; however, she says financial settlements are a given in the coming month and years.

There exists one more dynamic: the arguments over what kind of reach the Supreme Court has on another country’s decision making process. These lawsuits could be kicked long before they even leave the starting gate. This is because misconduct that occurs in another country isn’t necessarily a case the Supreme Court justices can rule on. Analysts are already betting on this being a huge roadblock for those looking to sue these big banks. Interestingly, whether or not it affects rates in the U.S. has little bearing on whether the lawsuits will hold up.

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