Barclays, HSBC, Royal Bank of Scotland, Citigroup, Deutsche Bank, JPMorgan and UBS have all been called to account over the alleged manipulation of the inter-bank lending rate. The investigation could result in criminal prosecutions for anyone found culpable.
Each bank will now need to work out who should face the regulatory panel (are the directors drawing straws as we speak?) These (un)lucky few will then appear before New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen and answer some tough questions on Libor rigging.
The subpoena will be a real blow to Barclays. The bank attempted to head off a legal summons by paying a pre-emptive £290m fine last month. CEO Bob Diamond and chairman Marcus Agius have also both resigned over the scandal. But its attempts to placate US regulators have been in vain, and this week will be a trial by fire for brand new chairman Sir David Walker.
And it’s looking increasingly hairy for the rest of the banks too. That’s the issue of collusion: it takes more than one bank to fix a Libor rate. The fall-out for any banks found guilty of manipulating the Libor will be huge: the Libor rate is used as a benchmark for trillions of dollars worth of trades and financial contracts, and investors will be queuing up around the block to sue over losses. ‘If they can prove it, then all the fees could amount to tens of millions of pounds,’ says Ralph Silva, a banking analyst at SRN.
It’s not just the Americans combing through the Libor data. At home, managing director of the Financial Services Authority Martin Wheatley is swiftly compiling his own report into how the rate is set. It looks like the whole thing may be scrapped altogether. Something which would greatly please our American cousins - New York Interbank Offered Rate, anyone? Is it just co-incidence that all these irate regulators are based on Wall Street?
All in all, it has been one hell of a month for the banking sector. Standard Chartered has been ordered to pay a £217 fine to New York regulators over breaking financial sanctions on trading Iranian money. HSBC has been put on the rack for money-laundering. Who knows how hard the Libor storm will end up blowing? One thing is for sure: we are going to see some big shake-ups in the banking sector over the next few months.