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Big banks sued for price-fixing GSE bonds
The state of Pennsylvania is bringing a class-action lawsuit against more than a dozen of the world's biggest financial institutions for allegedly price-fixing bonds issued by government-sponsored enterprises Fannie Mae and Freddie Mac.
The lawsuit claims that the financial institutions – which include Bank of America, Barclays Capital, BNP Paribas, Citigroup and more – conspired to fix the prices of more than $485 billion in GSE bonds over five years by both overcharging and underpaying investors.
An article from HousingWire explains that the bonds are not mortgage bonds, but rather bonds to support the GSEs' operations and "are traded 'over the counter.'"
"Since the bonds are not traded on a public exchange, the broker wields more control over pricing, as comparative bond trading is not made public," the article states. "Bond values must then be derived based on a price the buyer is willing to pay and what the seller is willing to sell for; known as derivative trading."
The Department of Justice is also investigating whether traders manipulated the prices of GSE bonds.
NAFCU last year released a white paper urging Congress to consider enacting a 21st century version of the Glass-Steagall Act, which would separate commercial and investment banking activities, to protect consumers from banks that are too big to fail.