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Report: GSEs May Have Lost More than $3B in Rate-Rigging Scandal

Fannie Mae and Freddie Mac may have lost billions of dollars as a result of borrowing rate manipulation, according to a report from the ""Office of the Inspector General of the Federal Housing Finance Agency"":http://www.fhfaoig.gov/ (FHFA-OIG).


The ""banking world was rocked"":https://themreport.com/articles/barclays-loses-two-more-as-scandal-embroils-bank-2012-07-03 in late June as it was revealed that traders at Barclays spent years rigging the London Interbank Offered Rate (Libor), a global interest rate at which banks lend money to each other. Investigations have been underway since that time to uncover the roles any other banks might have played in the scandal--so far, only Barclays and UBS AG have reached settlements to resolve investigations of their practices.

As those probes continue, the ""_Wall Street Journal_"":http://online.wsj.com/article/SB10001424127887324461604578189630708982470.html is now reporting Fannie Mae and Freddie Mac may have sustained more than $3 billion in losses from the rate-rigging.


The _WSJ_ uncovered an internal memorandum from FHFA inspector general Steve Linick to acting director Edward DeMarco examining the extent of the financial damage the GSEs likely took during the height of the financial crash as a result of rate manipulation.

The team that prepared the report--which was apparently given to Linick October 26 and forwarded to DeMarco November 2--came up with their loss figures based on an analysis of historical Libor data and the GSEs' balance sheets.

In the report, FHFA-OIG calls for the enterprises to conduct their own analyses of the potential losses they faced from Libor rigging and to consider options for legal action.

""In the context of active federal and state investigations into possible LIBOR manipulation, as well as the results of our own preliminary analysis of publicly available information, we believe that further investigation of the potential harm to Fannie Mae and Freddie Mac--and therefore to Treasury and, ultimately, the American taxpayer--of any LIBOR manipulation is firmly warranted,"" the report reads.

In a response letter dated November 15, deputy director for enterprise regulation Jon Greenlee notes the enterprises have both engaged an outside law firm to help conduct such assessments.

""FHFA"":http://www.fhfa.gov/ issued a statement after the publishing of the _WSJ_ article, saying the agency ""has not substantiated any particular LIBOR-related losses for Fannie Mae and Freddie Mac"" and ""has not made any determination regarding legal action"" as of yet.


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