Sunday, August 19, 2012

As the LIBOR Scandal Expands; Is New York State the New Sheriff in town?

Last week, Benjamin Lawsky, the head of New York State’s Department of Financial Services, announced a $340 million settlement with U.K based Standard Chartered Plc related to improper financial transactions with the government of Iran.  Additionally, New York’s Attorney General Eric Schneiderman issued subpoenas to Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Barclays, HSBC and UBS for documents and other communications related to the global investigation into the London Interbank Offered Rate (LIBOR) manipulation scandal.

While the U.S. Federal Reserve, the Treasury Department and the Justice Department often take the lead in these types of investigations, there may be a growing  sense of impatience and timidity with their recent oversight efforts of the  “too big to fail” banking crowd.  Given the broad use of the LIBOR index in setting rates for over $300 trillion of home mortgages, student loans, commercial loans and derivative contracts, any help in cleaning up the LIBOR mess is welcome.  Note: New York State passed the Martin Act in 1921 to expand the attorney general’s powers in financial fraud investigation, which are generally broader than other states and federal oversight entities.  Expect more activity by New York State in this area.

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