Mass. attorney general, treasury officials examine state impact of Libor scandal

Massachusetts prosectors will meet with state finance officials later this week to examine whether public agencies lost money when a key interest rate that is used to price loans and credit around the world was manipulated by bankers several years ago.

The meeting is prompted by the growing scandal involving rate-fixing of the one of the financial sector’s most widely used interest benchmarks, the London interbank overnight rate, or Libor as it’s known.

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Libor is used to determine lending rates for trillions of dollars of credit, from loans between financial institutions, to credit card and adjustable rate mortgages. It is also used to determine rates on financial investments known as interest-rate swaps that are used as insurance policies by many institutional borrowers such as municipalities and government agencies in the US.

Many Massachusetts agencies purchased interest-rate swaps during the period when Libor was allegedly manipulated by the banks that set the rate--around 2007 and 2008. State officials are now trying to determine if they were cheated out of insurance payments from those swaps because the banks set Libor at artificially low rate, according to Massachusetts officials involved in the examination.

Many other state and local governments across the country are also investigating whether they lost money from the interest rate manipulation and whether they should sue big banks at the center of the scandal. The city of Baltimore, which filed a class action lawsuit in New York against 14 banks, alleges rate manipulation damaged its finances.

Barclays, the giant London bank, admitted to regulators last week that it tried to manipulate Libor before and during the financial crisis. It agreed to pay $450 million to settle charges and said other banks were engaged in the same kind of activity.