Bank of America (BAC), Barclays (BCS), Citigroup (C), German bank WestLB and UBS AG (UBS) are now being investigated by US regulators – as well as authorities in Britain and Japan, over alleged manipulation of the Libor rate, the benchmark rate at which banks lend to each other.
Thursday’s Financial Times, citing people familiar with the investigation, reported Barclays, BofA, and Citi had all received subpoenas from U.S. regulators. Investigators are looking at how LIBOR, the London InterBank Offered Rate, was set for US dollars during 2006 to 2008, immediately before and during the financial crisis.
Libor rates, which are used to calculate the cost of billions of dollars of debt and are the basis for settlement of interest rate contracts on many major futures and options exchanges, spiked during the financial crisis but were widely criticized at the time for not reflecting true market prices. The system supposedly relies on banks providing honest prices and the price provided by each bank being transparent (16 banks contributed to the dollar rate in 2008). Critics of the process for setting Libor have long claimed it is too outmoded and lacking in transparency.