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Libor-Rigging Set Interest Rates Too Low, Too High and So Low They Were Too High

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Wall Street Journal

The paper gives a status report on the more than 30 private civil suits against 16 large banks over Libor manipulation. Combined with the regulatory fines, these suits could cost the industry tens of billions in the coming years, a law professor says. Interestingly, while some plaintiffs claim lenders were harmed because borrowers paid too little interest as a result of Libor-rigging, others argue borrowers were harmed because they paid too much. And a retired San Francisco cable-car driver says that because the benchmark rate on his adjustable-rate mortgage was artificially low, he's stuck paying an inflated spread over the life of the loan.

"Heard on the Street" says the Bipartisan Policy Center's plan to reform the mortgage market "doesn't eliminate the risk to taxpayers from another housing downturn," since it would preserve the 30-year, fixed-rate, prepayable-without-penalty mortgage, which the column argues is feasible only with government subsidies.

Bank securities portfolios are listed among the "areas of the market exhibiting bubbly behavior" in the "Current Account" column. When rates eventually rise, banks could lose money on their holdings of long-term securities, columnist Francesco Guerrera warns.

We missed this one yesterday: "RBS Might Sell Stake In Citizens."

Financial Times

"US banks are marketing mortgage bonds with new features that shield them from having to buy back defective loans, potentially raising risks for investors." For example, some new private-label MBS deals limit the period in which the loans can be put back to 18 to 24 months, a tighter window than the 36 months in the new Fannie and Freddie guidelines.

"Few errors found in 'robosigning' review" — "Leading US banks accused of breaking government rules when seizing the homes of delinquent customers may have harmed as few as 4.2 per cent of borrowers, according to people familiar with the matter." One or more of these "people" may work on the Hill, since the story says the "meager" percentage was "revealed by the OCC to Congress." But one or more of the anonymice might conceivably work for the regulator, and each camp has a different incentive to leak the figure. According to a rather "meta" passage in the story, it "may quieten some critics who have argued that the settlement was too small" but also "fuel calls for increased public disclosure of documents held by the OCC, which congressional investigators claim may contain details that call the settlement into question."

"JPMorgan sees surge in international revenues" — a preview of the bank's Investor Day. The headline means "sees" as in "witnesses," not "expects."

"Dividends back on banks' agendas" — Which sounds great, except according to this column "it makes for damning indictment of future growth prospects."

New York Times

"Treasury Pick Tries to Cast His History as Right for the Job" — According to this analytical thumbsucker, Jack Lew "has sought to show he has enough Wall Street experience to handle turbulent financial markets, but not enough to prevent him from reining in the powerful banking industry."

"Confirmation Hearing for Mary Jo White Said to Be Scheduled for March."

A few more states have joined the lawsuit challenging Dodd-Frank's Orderly Liquidation Authority on constitutional grounds. "Deal Professor" columnist Stephen J. Lubben is unimpressed by the suit's arguments.

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The Seven Largest Sanctions-Related Fines Against Banks

The Justice Department announced a criminal plea and settlement with BNP Paribas on Monday, in which the French bank will pay nearly $8.9 billion to settle charges it willfully continued to do business with countries and entities on the U.S. sanctions list. It was the largest sanctions fine in the Justice Department's history more than four times larger than #2 on the list. The following are the largest penalties paid by banks for sanctions violations.

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