SAN FRANCISCO—San Francisco is one step closer to joining a growing number of municipalities in California filing charges against the banks responsible for the LIBOR interest rate fraud. Supervisor John Avalos requested an investigation Tuesday into how much loss the city has suffered as a result of the manipulation.
LIBOR is the interest rate banks charge to lend to each other. In the summer of 2012 allegations came forward that 16 international banks, including JPMorgan Chase & Co., manipulated LIBOR to their advantage during the financial crisis.
“We actually can hold these banks accountable and recognize amends must be made,” Avalos said on Tuesday.
Avalos spoke at a press conference organized by ACCE (Alliance of Californians for Community Empowerment), a statewide nonprofit that fights foreclosures. The event was held in front of a Chase bank near City Hall.
At this week’s meeting of the Board of Supervisors, Avalos requested a hearing to “review the impact of illegal financial manipulation of the London Inter-Bank Offered Rate (LIBOR) on San Francisco’s finances and explore options to recover any losses,” the introduction form states.
English bank Barclays Plc. and Swiss bank USB, had to pay fines totaling nearly $2 billion in settlements with U.S. and European regulators. Other alleged colluding financial institutions are still under investigation.
It is estimated that municipalities in the U.S. have lost as much as $6 billion in interest income, as bond yields were artificially lowered because they were tied to LIBOR. In July 2012 the city of Baltimore became the first municipality to join a class action lawsuit demanding reparations for losses incurred due to LIBOR manipulation. Other city governments, groups of homeowners, small banks, and large investors have filed similar claims.
It is estimated that municipalities in the U.S. have lost as much as $6 billion in interest income.
In the Bay Area, the City of Richmond and San Mateo County joined San Diego County and other California governments that have already filed lawsuits this month.
“The municipalities are stressed due the actions of the banks. The housing authorities who are without sufficient cash flow are reducing their services. San Jose and Oakland are both reducing their police staff. Stockton declared bankruptcy … The public is being disadvantaged,” said Ian Haddow, a member of ACCE, who is at risk to be evicted from his home.
The hearing at the Budget and Finance Committee is expected to be held in mid-February. After assessing the damages, the city will decide the next step, Avalos said. One possibility would be for City Attorney Dennis Herrera to file suit.
ACCE, the Service Employee International Union (SEIU) and other groups recently formed a coalition called ReFund California, to support these efforts to reclaim lost public money from the responsible banks.
Former San Francisco City Supervisor Chris Daly, now political director of SEIU Local 1021, stressed the impact the LIBOR fraud had on workers’ pensions.
“There is talk about how public sector worker pensions are breaking the bank. We’ve come to find [that] the banks with their fraud are breaking the pension system,” said Daly.
“We are calling on the leaders to determine exactly what the impact is,” he said. Daly believes losses have occurred and hopes the city “makes sure every penny that the people, city, and county of San Francisco were defrauded out of gets returned.”
Government entities often lose money because of such illegal behavior, said Joshua Paul Davis, professor and director of the Center for Law and Ethics at the University of San Francisco.
Peter Henning, professor of law at Wayne State University Law School, sees a chance the California Attorney General will file a suit representing all city and county governments seeking a recovery for LIBOR manipulation.
“That would be even more significant, especially in California, because of its large population and heavy borrowing by cities,” said Henning.
Henning expects settlements in a year or two with San Francisco receiving a slice from the settlement fund. Therefore, Henning recommends the city to coordinate with other municipalities and plan how it will establish harm from LIBOR manipulation “so that it can get its fair share of any settlement.”
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