State And Local Governments Reacting to Interest Rate Scandal

Today’s online Governing magazine focuses on governmental actions as markets still react to the international banking scandal over manipulation of the benchmark interest rate known as LIBOR (London Interbank Overnight Rate). From their coverage:

When news broke that the British bank Barclays had rigged the London interbank offered rate, or Libor, it came as no surprise to many in the municipal finance world. Some, like the city of Baltimore, had already taken action in the form of a lawsuit.

Use of interest-rate swap agreements tied to Libor soared beginning in the 1990s as governments sought to hedge against rate hikes and add certainty to budgets, with banks receiving fees. When interest rates plummeted once the recession hit, public agencies were faced with two unattractive options: lose money by failing to refinance floating rate debt or pay hefty contract cancellation fees.

As previously reported on Conduit Street, the City of Baltimore is among numerous governmental plaintiffs filing suit against the implicated banks to recover losses arising from the rate manipulation.

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