Alison Frankel reports that:
Common sense has prevailed at the 2nd U.S. Circuit Court of Appeals in litigation over an alleged conspiracy among 16 global banks to manipulate the London Interbank Offered Rate (Libor), a key interest rate benchmark. The appeals court held Monday that price-fixing collusion among competitors is a violation of antitrust law, even if it takes place in the context of an ostensibly cooperative rate-setting process.
The 2nd Circuit’s 61-page opinion, written by Judge Dennis Jacobs for a panel that also included Judges Reena Raggi and Gerard Lynch, vacated a controversial 2013 decision in which U.S. District Judge Naomi Reice Buchwald of Manhattan tossed classwide antitrust claims because the Libor rate-setting process is collaborative, not competitive. The ruling revives the banks’ exposure to potentially billions of dollars in damages from investors who say they were victimized by artificial Libor rates.
As I noted in an article on LIBOR:
Because a wide range of commercial loans and residential mortgages were set by reference to LIBOR, artificially low LIBOR rates benefitted borrowers who paid less on their loans than they would have in an honest market at the expense of banks who were not fully com- pensated for the risks they were bearing. [On the other hand,] artificially low LIBOR rates resulted in losses for many investors, “such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to LIBOR.”
The trouble with litigation is that only the folks who were hurt are represented in the case. From a societal perspective, however, their losses were mitigated by the benefit to borrowers. But the judicial system is ill-suited to take that into account.