Congressional Probe of Fed and Libor Set to Widen to U.S. Banks

Congressional investigators probing banks’ efforts to rig the London interbank offered rate plan to request correspondence between the Federal Reserve and U.S. banks that help set the rate.

’’What we’re going to do now is expand our inquiry into the domestic banks and see what kind of dialogue began with the Fed and these banks,’’ Representative Randy Neugebauer, a Texas Republican and chairman of the oversight and investigations panel of the U.S. House Financial Services Committee, said in an interview on CNBC today.

Neugebauer intends to request correspondence between the Fed and the three U.S. banks on the Libor-setting panel, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Bank of America Corp., according to a congressional aide, who spoke on condition of anonymity because the details were not yet public.

The U.S. central bank is drawing more scrutiny from lawmakers critical of its record as a bank regulator after the New York Fed released documents showing it was aware that Barclays Plc (BARC) underreported borrowing costs in 2008. Neugebauer requested the documents, which were made public July 13.

Barclays was fined a record 290 million pounds ($452 million) last month and the scandal cost Chief Executive Officer Robert Diamond his job. At least a dozen banks are being investigated.

The underreporting of London interbank offered rates is “unacceptable behavior” and the U.S. central bank offered a “substantial response” to address the problem, Federal Reserve Chairman Ben S. Bernanke said at a Senate Banking Committee hearing in Washington.

The disclosures are “not only very troubling in themselves but they have the effect of undermining public confidence in financial markets,” Bernanke said during testimony.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net