Freddie Mac sues 15 banks over LIBOR | The Columbus Dispatch

WASHINGTON — Freddie Mac has sued 15 big international banks, including JPMorgan Chase, Bank of America and Citigroup, accusing them of rigging a key interest rate and causing huge losses for the government-controlled mortgage giant.

Read more: Freddie Mac sues 15 banks over LIBOR | The Columbus Dispatch

GOP rips Geithner about LIBOR - USATODAY.com

WASHINGTON — WASHINGTON Republican lawmakers are criticizing Treasury Secretary Timothy Geithner for failing to alert Congress four years ago that banks could be manipulating a key global interest rate.

Britain's Barclays bank admitted last month that it had submitted false information to keep the rate low. The bank was fined $453million in settlements with U.S. and British regulators, and its chief executive resigned.

Documents show the Federal Reserve Bank of New York learned in 2007 that Barclays was manipulating the rate.

Geithner, who was then president of the New York Fed, defended his actions at a hearing Wednesday of the House of Representatives Financial Services Committee.

Geithner said he immediately alerted U.S. and British regulators in 2008 when he learned of problems with the London interbank offered rate, or LIBOR. He also said the problems were written about in the financial media.

"I felt that we did the important and fully appropriate thing," Geithner testified.

But Rep. Scott Garrett, a Republican, asked why Geithner didn't tell Congress.

"You have appeared before this committee countless times since 2008," Garrett said. "Why did you never mention it to the committee?"

Rep. Brad Miller wanted to know whether Geithner had informed the Justice Department about the problems.

Geithner said he had not.

Other major banks, including Citigroup Inc. and JPMorgan Chase & Co., are under investigation for similar violations.

The European Union proposed Wednesday to make manipulating the Libor and other key global interest rates a crime.

A British banking trade group sets the LIBOR every morning after international banks submit estimates of what it costs them to borrow money. The rate affects trillions of dollars in contracts around the world, including mortgages, bonds and consumer loans.

Geithner also warned in his testimony Wednesday that Europe's debt crisis and a looming budget crisis in Washington could weaken an already-fragile U.S. economy. He told the panel that regulators must pursue stricter oversight of the financial system to help stabilize the economy.

By Marcy Gordon, Associated Press Jul 26, 2012


GOP rips Geithner about LIBOR - USATODAY.com

Commercial Mortgage Lending: LIBOR vs. Fixed-Rate Loans

Commercial lending has gotten more complex in recent years as banks increase lending restrictions and get choosier about their lending clients. One significant change is the shift from offering long-term fixed-rate commercial mortgages to using the London InterBank Office Rate (LIBOR), which is a rate determined on a daily basis by the British Banker’s Association. These types of variable-rate loans shift according to market trends and is usually conveyed to the borrower at the start of the loan negotiation as a spread above a specific LIBOR rate. Obviously, these types of loans make it difficult for the borrower to determine the final cost of the loan, so many banks will offer an “interest swap” product that will cover a certain percentage of the unknown value. For more on this continue reading the following article from JDSupra.

If you have been involved in commercial mortgage financing during the past decade, whether as a borrower, lender, or legal counsel, you have likely been a witness to the changes that have taken place in the manner in which loan interest rates are set and adjusted.  For most sophisticated institutional lenders, long gone are the days of long term, fixed interest rates, which remain unchanged throughout the life of the loan.  Instead, many lenders now quote interest rates which either “float” with market conditions or, frequently, adjust to reflect the latest market trends.

The benchmark used by many lending sources to set loan interest rates is “LIBOR.” “LIBOR,” an acronym for the London InterBank Offered Rate, refers to an averaged rate, which is determined on a daily basis on behalf of the British Bankers’ Association.  It measures the cost at which a member bank can borrow from other member banks, on an unsecured basis, for a certain time period utilizing a given currency.  The LIBOR rate is calculated for 10 currencies and for 15 maturities, ranging from overnight borrowing to a 12-month loan period.

It is common to see commercial mortgage lenders quote proposed interest rates based on a “spread” above a specific LIBOR rate, which rate is automatically readjusted at the end of each LIBOR period.  For instance, the lender may quote an interest rate of 3.00% above one month LIBOR, which will adjust monthly at the end of each one-month LIBOR cycle.

Such variable rate loan pricing creates potential uncertainty as to the ultimate borrowing costs for a transaction.  In order to bring some certainty and stability, many lenders offer their borrowers “interest swap” products, pursuant to which the borrower exchanges its variable rate loan obligation for a fixed rate obligation.  The swapped, fixed rate is somewhat higher than the then current variable rate obligation.

Variable interest rate loan documentation, whether based on LIBOR or some other benchmark, requires careful drafting and negotiation to be certain that the details of the interest rate calculations, loan amortization, and swap features are properly covered. Therefore, it is important to consult with an experienced business and commercial financing lawyer.

by Robert Marsico NuWire Investor Mar 12, 2012

Commercial Mortgage Lending: LIBOR vs. Fixed-Rate Loans