Libor scandal: US regulators summon seven banks



Pressure on the banking sector over the Libor-rigging scandal was ramped up after it emerged that seven banks, including the Royal Bank of Scotland (LSE: RBS.L - news) and HSBC (LSE: HSBA.L - news) , have been issued with subpoenas in the US.

The threat of prosecutions loomed closer as authorities in New York (Frankfurt: A0DKRK - news) and Connecticut became the latest to widen the investigation into the alleged manipulation of the interbank lending rate.

New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen are jointly investigating and have requested information from JP Morgan Chase, Barclays (LSE: BARC.L - news) , state-backed lender Royal Bank of Scotland and HSBC . UBS (NYSEArca: DJCI - news) , Deutsche Bank (Xetra: 514000 - news) and Citigroup (NYSE: C - news) were also named in the report by Bloomberg .

Ralph Silva, a banking analyst at SRN, said: "This is actually a bit surprising. We expected to hear more banks being served with Libor subpoenas, but we didn’t expect to see them all happen at the same time.

"It’s quite clear that over the past six months [regulators] have put a tremendous amount of resources into this, and it looks like all those investigations are coming to a head right about now."

Barclays has already been fined £290m for its role in rate rigging . The scandal prompted the resignation of its chief executive Bob Diamond and chairman Marcus Agius. It is expected that investigations into other banks will result in further fines and resignations.

"We’re going to see a lot of change in senior management for some of the the world's biggest banks. There will be some turmoil in the banking industry over the next few months," said Mr Silva.

                            [Related article: UK regulator says Libor 'not fit for purpose']

UBS (NYSEArca: SPGH - news) said in its second quarter results that agencies including state attorneys general were examining whether it and other banks had tried to manipulate the rate.

Earlier this month, Stephen Hester, RBS chief executive, admitted that the bank had sacked staff over the scandal.

"I think that the regulators must decide how they want to deal with the situation. We will stand up and take any punishment that comes our way," he said.

In the UK the Serious Fraud Office has said it will investigate “a number of financial institutions” over the alleged manipulation of Libor and related interest rate benchmarks.

The Government has also commissioned a review of the Libor-setting system after it was widely accepted that the current system based on subjective submissions from banks is no longer viable. Sir Mervyn King, governor of the Bank of England, has been among those to say that Libor is not working and must be replaced,

Martin Wheatley, who heads conduct regulation at the Financial Services Authority and is leading the review of Libor for the Government, said last week that his proposals would be published by the end of September .

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Martin Wheatley's speech

He also warned that it was “up to markets to decide” how much weight to give to Libor going forward since he said it was “not for regulators to set benchmarks”. He said he expected Libor to continue to be used but for institutions to use a wider range of benchmarks to suit individual products.

Martin Wheatley said recommendations would include action for banks that could be “implemented very quickly”.

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