Official says Libor case could mushroom

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RALEIGH, N.C., Sept. 5 (UPI) -- A state treasurer said the Libor manipulation scandal could end with settlements as large as the recent foreclosure case settlement with five major U.S. banks.

The settlement with five of the nation's largest banks for their part in taking illegal shortcuts in foreclosure cases came to $26 billion.

The Libor scandal has already resulted in Barclays bank settling its case with New York and British regulators for $450 million.

As investigators look into large banks that help set the Libor rate -- more than a dozen of them -- the numbers begin to look pretty large, The New York Times reported Wednesday.

"We think this could be as big as the mortgage crisis settlement, that this could be a really high impact situation and that we should be aggressive on this," North Carolina Treasurer Janet Cowell said.

Part of the problem facing plaintiffs in the Libor case is how to calculate the losses they incurred when banks manipulated the rate used as a benchmark rate for a wide variety of business and personal loans.

Barclays manipulated its Libor numbers -- Libor being the London inter-bank offered rate, which is the rate banks charge other banks for overnight loans. That rate is averaged by the British Bankers Association and published as the Libor.

Banks gained by making themselves look healthier if they reported low borrowing rates.

A lower Libor also sweetened the pot on a variety of deals, the Times said.

Municipalities were affected when their pension funds held bonds with rates attached to the Libor.

But larger losses would have been incurred with interest rate swaps, which is how municipalities ensure they won't be hurt by floating interest rates on bonds.

The foreclosure case included a national coordination of attorneys general and the Libor case is working in that direction, as well.

A spokeswoman for Connecticut Attorney General George Jepsen said Jepsen's office was working with New York Attorney General Eric Schneiderman.

The case "has broadened significantly over the last few weeks and we are now coordinating with a much larger group of attorneys general," the Jepsen spokeswoman said.