Citigroup Inc. (C), Deutsche Bank AG (DB), Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) have been asked by U.S. regulators to make employees available to testify as witnesses in a probe of potential interest-rate manipulation, two people briefed on the plans said.
The banks, members of the panel that sets the interbank offered rate known as Libor, were asked to appear voluntarily for the interviews in London in April with the U.K. Financial Services Authority, the people said, speaking on condition of anonymity because the proceedings are confidential. The people didn’t say who from the banks would testify.
The U.S. Department of Justice, Securities and Exchange Commission and Commodity Futures Trading Commission may be investigating whether banks colluded to artificially reduce Libor, another person with knowledge of the probe said. U.K. regulators often cooperate with their U.S. counterparts in enforcement probes.
Libor rates, a benchmark for more than $350 trillion of financial products worldwide, are set daily by the British Bankers’ Association based on data from banks reflecting how much it would cost them to borrow for various periods of time and in different currencies. The Bank for International Settlements questioned whether Libor rates were accurate during the credit crisis, and some analysts accused banks of concealing the difficulty they were having in borrowing money.
Spokespeople from Frankfurt-based Deutsche Bank, Germany’s biggest bank; Charlotte, North Carolina-based Bank of America, the largest U.S. lender by assets; New York-based Citigroup, the U.S. bank that received the biggest taxpayer bailout; and New York-based JPMorgan, the second biggest U.S. lender by assets, declined to comment.
The investigation came to light last week after UBS AG, Switzerland’s biggest bank, said it received subpoenas from U.S. and Japanese regulators. UBS said it is conducting an internal review and is cooperating with the investigations. Germany’s WestLB AG and London-based Barclays Plc and Lloyds Banking Group have also been contacted by regulators, according to two people with knowledge of the investigation.
“WestLB has voluntarily and fully cooperated with all requests in this review and has not received any subpoenas in this regard,” WestLB spokesman Richard Bassett said.
Spokespeople for Barclays and Lloyds declined to comment.
Interbank market rates soared to a record in September 2007 as losses on securities linked to U.S. subprime mortgages kept lenders from providing money to any but the safest borrowers. The difference between what the U.S. government and banks had to pay to borrow money reached a record the following year after Lehman Brothers Holdings Inc. (LEHMQ) filed the U.S.’s biggest bankruptcy.
In 2008, following a report on the Libor-setting process, officials from the Basel, Switzerland-based Bank for International Settlements, which acts as a central bank for the world’s monetary authorities, said that they couldn’t rule out the possibility that rates were manipulated. The March report said that the procedure of stripping out the banks’ highest and lowest estimates probably “minimized” the impact of any possible manipulation.
The British Bankers’ Association said last week that they are committed to retaining the integrity of Libor, “which continues to be the authoritative benchmark of the wholesale money market.” The BBA in February expanded the panel of banks that contribute to the Libor rate in dollars from 16 members to 20.
The difference between the three-month dollar Libor and the U.S. Federal Reserve’s target rate widened to a record 332 basis points on October 10, 2008, according to BBA data. Over the previous eight years, that spread had averaged about 22 basis points.
FSA spokesman Chris Hamilton, Justice Department spokeswoman Gina Talamona, SEC spokeswoman Florence Harmon and CFTC spokesman David Gray declined to comment.
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