Nine banks added to Libor investigation

Eric Schneiderman

Nine of the world’s largest banks have been subpoenaed by U.S. state prosecutors to determine whether the institutions manipulated a key interest rate known as Libor.

Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds Banking Group, Rabobank, Royal Bank of Canada, Société Générale, Norinchukin Bank and West LB join several other major banks already under investigation in the scandal. A total of 16 banks are under investigation by two state prosecutors, CNBC News reports.

The banks were subpoenaed by New York Attorney General Eric Schneiderman and Connecticut Attorney General George Jepsen.

Regulators in the U.K., Canada and Japan are also conducting similar but separate investigations.

Authorities are investigating whether financial institutions intentionally submitted low estimates between 2005 and 2009 as part of an attempt to manipulate Libor, according to CNBC News.

Libor is a key benchmark rate used to price trillions of dollars’ worth of derivatives, including home mortgages. Banks submit estimated rates at which they could borrow from other banks to the British Bankers Association, which tosses out high and low submissions and averages the submissions to establish Libor.

Gary Gensler, the chairman of the Commodity Futures Trading Commission, told British parliament that data collected by the commission indicates that the rate is flawed and requires reform. The U.K. Treasury announced last week that it would adopt all reform recommendations suggested by Martin Wheatley, managing director of Britain’s Financial Services Authority.

Under New York’s 1921 Martin Act, Schneiderman is given the authority to investigate any firms transacting business in New York and to bring cases against them without showing proof that the institutions intended to commit fraud. The law also allows Schneiderman to conduct the investigation across state lines, thereby acting on behalf of American investors, CNBC News reports.

Schneiderman has been successful in enforcement actions in the past. The New York Department of Financial Services fined the New York-licensed Standard Chartered $340 million in August for alleged mortgage abuses.

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