Libor Scandal, Litigation and Insurance

The ongoing revelations surrounding the manipulation of interest rates by big banks during the financial crisis  are making headlines around the world.

On Saturday the New York Times reported that fallout from the scandal is prompting greater scrutiny of bank regulators, amid questions over whether they allowed banks to report false rates before and during the 2008 financial crisis.

For an understanding of the potential risk costs to banks involved in the scandal, a recent post on the Financial Times Alphaville blog covers the latest estimate of Libor risk from Morgan Stanley, including litigation risk.

And what about the implications for insurers?

Over at the D&O Diary, Kevin LaCroix has been keeping readers updated on possible implications of the Libor scandal in the world of directors’ and officers’ liability.

In a July 13 post about the filing of the first securities class action lawsuit by a Barclays shareholder, LaCroix noted that the Libor scandal shows that the financial institutions arena remains a risky neighborhood.

In another post earlier in the week, LaCroix said that it remains to be seen what the fallout from the scandal means from an insurance perspective:

The ultimate consequences for the companies involved and their insurers will only emerge over the coming months and years as this scandal continues to unfold. It does seem likely that the related civil litigation will continue to accumulate. To the extent additional derivative claims are filed, or if shareholders of target banks file securities claims, the follow-on civil litigation could develop into a significant event for the D&O insurance industry. At this point, the one thing that is clear is that it will pay to watch closely as the investigation unfolds and the follow-on civil litigation continues to emerge.†

Check out information from the I.I.I. on specialty risks.

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