Seven banks investigated over Libor scandal

Posted:

16 August 2012

Seven banks are to be probed by US authorities over accusations that they sought to manipulate the Libor interbank lending rate.

Barclays was struck with a fine last month after attempting to rig the rate, which is based on reports from banks on how much borrowing costs them and then used to set vital interest rates which affect many financial transactions. It was found that Barclays staff were offering up misleading figures in an attempt to rig the market to their benefit, for which the bank faced a £290m fine.

But US regulators have put forth the argument that it was extremely unlikely that Barclays would have tried to manipulate the rate on their own, and that at least one other bank would have had to have been in cahoots with them in order to permit any level of success.

As a result, RBS, HSBC, Barclays, Citigroup, Deutsche Bank, JPMorgan and UBS are all to be investigated in the hope of uncovering a paper trail or coaxing out testimony which would demonstrate any involvement in the Libor scandal, and have received a subpoena from the attorneys general of New York and Connecticut to this end.

If evidence is uncovered, it is likely to lead to a criminal prosecution, with one banking analyst claiming that this unprecedented case could lead to fines of tens of millions of pounds. Criminal proceedings would also bolster any claims brought by investors over any losses they may argue were caused by interest rate manipulation.

Back in the UK, the managing director of the Financial Services Authority, Martin Wheatley, is currently spearheading a review of the regulation of the Libor system.

The review will probe the calculations that lie behind the rate and examine how they are regulated, with Wheatley already having stated that the current approach cannot remain in place.