Libor, a base rate used to determine interest rates for trillions of dollars in loans and securities, is being reexamined after a series of revelations that show how thoroughly it was being manipulated by bankers and traders. Banks sought to lower Libor to appear more solvent than they were, or to raise it to increase the interest payments of borrowers with variable-rate loans. Derivatives traders colluded to raise and lower the rate in time with their own trades. A meeting was held Monday to discuss possible changes in the governance of Libor, and around the same time, Libor sponsor BBA removed from its web site what it said were inaccurate marketing statements about its role in creating Libor.
Allen Stanford, whose offshore bank was the center of a $7 billion Ponzi scheme, was convicted of fraud and other charges on Tuesday. The bank, Stanford International Bank, was seized by authorities in Antigua in 2009 shortly after U.S. authorities shut down Stanford’s headquarters in Houston.
The U.S. Treasury is apparently wary of the disruption it would cause to shut down Freddie Mac at this point, but in the meantime, the delay is allowing it to pile up more losses. This week it asked for another $146 million in Treasury support. Freddie Mac’s CEO has announced his resignation effective in October.
At closing time tonight came word that state banking regulators had closed New City Bank in Chicago. It had $72 million in deposits, most of which were insured. The FDIC will send checks to the depositors starting on Monday.
New City Bank had been in business, with a high profile but just one location, for just nine years. It had some of the signs of a bank that was too informal in its operations. It made 10 percent of its loans to insiders. That is a proportion high enough to cause concern, and perhaps it made it difficult for the FDIC to find a buyer. The bank also had a recent connection to scandal. One of its stockholders, with about a 0.5 percent share in the bank holding company, is a county commissioner who last month was indicted for tax evasion after allegedly using campaign funds to pay gambling debts.