US investigates banks over credit crisis 'cartel' claim

Stephen Foley
Friday 15 April 2011 00:00

The US authorities are considering invoking anti-cartel laws against some of the world's biggest banks, in an investigation into whether they colluded to manipulate interest rates during the credit crisis.

An investigation by the US Justice department and the Securities and Exchange Commission, the Wall Street regulator, is examining if banks published misleading data to play down the effects of the escalating crisis between 2006 and 2008.

The inquiry is focused on the calculation of the London Interbank Offered Rate, known as Libor, which is central to the operation of financial markets. The price of trillions of dollars of loans and derivatives are set with reference to Libor, and it became one of the most closely watched measure of stress in the financial markets during the crisis.

The US is examining suspicions that banks fed in misleading information, either to keep Libor artificially low or to hide the fact that their own borrowing costs were spiking higher – something that could have triggered a panic by their shareholders and clients.

Libor is calculated by the British Bankers' Association based on information from a panel of banks, who make public the interest rate at which they can borrow money.

Last month, UBS became the first bank to publicly disclose that it had been subpoenaed in the US as part of the investigation. "UBS understands that the investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor," it said then.

Barclays, Citigroup and Bank of America are also believed to have received subpoenas, while other banks on the BBA panel have also been drawn into the investigations. The UK's Financial Services Authority and Japanese regulators are among those taking an interest.

The BBA's Libor panels include most of the world's major banks, including HSBC, Lloyds and Royal Bank of Scotland from the UK.

The BBA has argued that it did the best conceivable job of calculating Libor at a time of unprecedented stress in the credit markets. The surging Libor rate became a focus of concern as the credit crisis escalated in 2007, and when markets effectively froze, banks were finding it impossible to borrow at almost any interest rate.

"We are committed to retaining the reputation and integrity of Libor," the BBA said.

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