Exclusive: U.S. conducting criminal Libor probe

Wed Feb 29, 2012 9:35am EST
 
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By Carrick Mollenkamp

NEW YORK (Reuters) - The Justice Department is conducting a criminal probe into whether the world's biggest banks manipulated a global benchmark rate that is at the heart of a wide range of loans and derivatives, from trillions of dollars of mortgages and bonds to interest rate swaps, a person familiar with the matter said.

While the Justice Department's inquiry into the setting of the London interbank offered rate, or Libor, was known, the criminal aspect of the probe was not.

A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK.

Several major global banks, including Citigroup Inc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG, have disclosed that they have been approached by authorities investigating how Libor is set.

No bank or trader has been criminally charged in the Libor probes. It wasn't clear which banks or traders the Justice Department is targeting in its criminal probe.

The Justice Department and the banks declined to comment.

Libor is set everyday in London for 10 currencies for a range of maturities. The rate is supposed to reflect the rate at which banks lend to one another. Dollar Libor, for example, is calculated after 18 banks submit the costs to borrow dollars.

The rate underpins $10 trillion in loans to consumers and companies and another $350 trillion in derivatives. In the derivatives market, Libor is used in the pricing of the massive and popular interest-rate swaps market, where two parties swap floating- and fixed-rate interest payments. Libor typically is used as the basis for the floating rate.   Continued...

 
The exterior of the U.S. Department of Justice headquarters building in Washington, July 14, 2009.    REUTERS/Jonathan Ernst