Some of the world’s largest banks are urging the US judge not to end LIBOR immediately after a group of lenders submitted a suit saying it was work ” price base card ”was the criterion.
Defendants of the case, including JP Morgan Chase, Credit Suisse Group and Deutsche Bank, said in a filing in November that a stop order would abruptly end the interbank offer rate. in London damage to financial markets and the elimination of years of work reforming the reference rate. The plaintiffs, which includes 27 consumer lenders and credit card users, are also seeking compensation.
Lawyers not involved in the case say the chances for a warrant are slim. But it does highlight the risks and legal costs for banks that maintain LIBOR, which remains the basis for hundreds of trillion dollars of financial assets worldwide. It also clarifies the sensitivity of the infamous criterion, which may in theory preclude a single court decision.
“You really have to take it seriously because it would be a disaster if implemented,” said Anne Beaumont, a partner at law firm Friedman Kaplan Seiler & Adelman. “It is likely that they will continue to take legal action like this while he is there.”
A judge in San Francisco has said he will rule on the warrant without a hearing. The judge is scheduled Thursday to hear a request from the banks to move the case to Manhattan federal court.
LIBOR comes from a daily survey of bankers who estimate how much they would spend on each other for a loan. It is used to help determine the cost of borrowing worldwide, from student loans and mortgages to flat-rate swaps and collateralized loan obligations.
As a result of the 2008 financial crisis, regulators found that lenders had manipulated the rates to their advantage, which resulted in billions of dollars in fines.
For more than three years, policymakers around the world have been developing new criteria to replace LIBOR by the end of 2021. In November, officials proposed an extension for some LIBOR dollar subscribers to mid-2023, to help companies deal with the transition process.
If the criterion were to be removed immediately, many derivatives contracts have a background language that would allow them to move to another level, according to Y. Daphne Coelho-Adam, a consultant at Seward & Kissel, who does not have the involved in the case. But hundreds of billions of dollars of bonds, loans and securities do not have a clear replacement rate and could pose a threat to financial stability.
Defendants in the case also include UBS Group, Citigroup, HSBC Holdings and ICE Benchmark Administration, which will monitor the rating.
“One way or another must be stopped or neutralized because it is an illegal agreement to set prices,” said Joseph Alioto, a lawyer at Alioto Law Firm which represents the complaints, in an interview. Banks argues that “the skies are falling and all sorts of economic damage is happening. In the United States that doesn’t really matter, “he said.” If you’re fixing prices you can’t do it, no matter what the outcome or business excuse. “
The objections demand that LIBOR be prohibited or set at zero by lenders repaying capital but without interest.
The banks said in a filing that none of the plaintiffs have shown that they have ever paid interest based on LIBOR, adding that the suit is built on “unfounded theories about trust liability.” regulators have warned that even temporary concerns of LIBOR could destroy financial markets, bank lawyers said.
“Complaints claim that the process of full regulation of setting standards that are a fundamental part of the global economy is a breach of trust,” the banks said. “But legitimate collaborative actions, even those involving competitors, often win competition.”
The banks are supported by organizations including the International Association of Swaps and Derivatives and the U.S. Chamber of Commerce. In separate filing, they argue that in the absence of mechanisms to determine future borrowing costs, parties would spend “substantial resources” negotiating price records, and could be forced use fixed standards.
Lawyers for the banks did not respond to email requests for comment.