Senators Jack Reed (D-RI), Chair of the Securities Subcommittee and Carl Levin (D-MI), Chair of the Oversight Subcommittee, have asked the members of the Financial Stability Oversight Council (FSOC), including the SEC and CFTC Chairs, to restore confidence in the financial markets in the wake of the LIBOR manipulation by conducting prompt and thorough investigations and taking appropriate actions against any wrongdoers, and fixing this process so that breaches of confidence like this do not happen again. The Senators urged the FSOC members to direct their staffs to assess the current LIBOR process, to detail areas where abuse has or could occur, and outline proposals that will restore the market’s confidence. The letter, which was also sent to the US Attorney General, was also signed by Senators Dianne Feinstein (D-CA), Tom Harkin (D-IA), Patrick Leahy (D-VT), Robert Menendez (D-NJ), Sherrod Brown (D-OH), Jeff Merkley (D-OR), Sheldon Whitehouse (D-RI), Frank Lautenberg (D-NJ), Daniel Akaka (D-HI), and Jeanne Shaheen (D-NH).
The London Inter-Bank Offered Rate (LIBOR) is a measure of the cost of borrowing between banks and a crucial benchmark for various interest rates worldwide. It is used to set interest rates for credit cards, student loans, and mortgages in the
. It has been
termed the world's most important benchmark for interest rates, underpinning
approximately $800 trillion in loans, derivatives, and other financial
instruments. It is also used by
regulators and the markets to help evaluate the financial strength of banks United States
The Senators are concerned that global financial institutions, including several based in the
may be involved in an effort to purposely misstate LIBOR. At its most basic
level, noted the Senators, manipulating LIBOR by submitting inaccurate numbers
might help these financial institutions improve the value of their own
LIBOR-linked trading positions and improve market participants’ and regulators’
perceptions of their soundness and lower their borrowing cost. United States
In settlements with the CFTC and DOJ, said the Senators, one bank admitted and accepted responsibility for its misconduct in manipulating LIBOR. But, they emphasized that much more needs to be done. In that spirit, the Senators urged the SEC, CFTC and other financial regulators to direct their staffs to thoroughly investigate the banks and the process involved in setting LIBOR for any wrongdoing. Banks and their employees found to have broken the law should face appropriate criminal prosecution and civil action.
The Senators are similarly troubled by allegations that
and foreign bank regulators
may have been aware of this wrongdoing for years. Just like the banks and
executives they oversee, reasoned the Senators, regulators who were involved
should be held to account for any failures to stop wrongdoing that they knew,
or should have known about. U.S.