“I hope this will be the first step in the bigger process to determine the strongest course of action for the city to protect tax payers from these crimes,” Supervisor John Avalos said Wednesday.
Avalos had called for a hearing at the Budget and Finance Committee to “review the impact of illegal manipulation of the London Inter-Bank Offered Rate on San Francisco’s finances” and “to explore options to recover any losses.”
LIBOR is the interest rate with which banks lend to each other. It is the most widely used benchmark rate for short-term interest rates in the world and the basis for a multitude of financial processes, including investments held by cities and counties.
Eighteen international banks determine LIBOR, including three U.S. banks: Bank of America, Citibank, and JPMorgan Chase. In 2008 it was revealed that for years, the participating banks falsely inflated the rate to their advantage, resulting in billions of dollars in losses for public and private customers, one of the biggest financial scandals in recent years.
It is estimated that municipalities in the United States have lost as much as $6 billion in interest income, as bond yields were artificially lowered because they were tied to LIBOR.
Several representatives of city agencies testified at the hearing.
Greg Kato, from the city’s Treasurer’s Office, said the office has not seen any impact from the LIBOR manipulation on the investments of the pool fund portfolio.
Jay Huish, executive director of the city’s Employees’ Retirement System, said an investigation showed that there was a $200,000 net loss due to LIBOR manipulation for every basis-point.
Still, “the board has shown no interest in initiating a lawsuit per se,” Huish said.
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. However, last week a court dismissed the anti-trust section of the lawsuit.
Tom Lakritz, deputy city attorney, said the agency has not made any decision yet on possible legal steps, such as joining a class-action lawsuit with other municipalities.
In the Bay Area, the City of Richmond and San Mateo County, as well as San Diego County and other California governments have already filed lawsuits earlier this year.
“There are number of avenues the city can pursue,” Lakritz said.
Avalos expressed concerns for the city’s taking a wait-and-see approach, due to a statute of limitations that would apply.
Former supervisor Chris Daly described the city’s agencies’ responses as “devoid of resolve,” during the public comment session.
“The city lost millions of dollars, and anything other than an aggressive response to get every nickel of that back is not worthy of the city and county of San Francisco,” he said.
Daly is political director of Service Employees International Union Local 1021 with 54,000 members in Northern California. SEIU’s members are strong supporters of reclaiming losses, and many spoke out at the meeting.
Bahar Tolu, researcher with SEIU, estimates that for San Francisco International Airport alone, there have been almost $100 million in losses since 2008.
Many speakers at public comment pointed out that the city is cutting down on social services and citing financial necessity—while not pursuing this opportunity to reduce the public debt.
“We have seen too many services cut. [There are] people who depend on programs that are just wiped off the map; it’s heartbreaking,” said Rebecca Morrow, a public health nurse and member of SEIU. “The time is now for us to act.”
In settlements, the banks Barclays Plc, USB, and the Royal Bank of Scotland agreed to pay European and U.S. regulators a total of more than $2.5 billion in fines, while no money has been paid to municipalities.
The U.S. Department of Justice and other regulators are still investigating the other banks that had contributed to the manipulation.
Avalos asked the city to reconsider its whole relationship with banks. “Why do we continue to do business with banks that we know bend and break the law?” he asked.
He suggests finding long-term local solutions to administer city investments, such as moving toward a municipal bank.