Though the Libor
interest rate scandal that has rocked the financial world in the UK -- forcing
the resignation of the Chairman, CEO, and COO of banking giant Barclays last
week -- the furor over the scheme has yet to garner similar media coverage or
public outrage in the United States.
That may change
as Americans learn more about how manipulation of Libor has impacted their own
finances and as US lawmakers begin to make inquiries about the level of
complicity by US banks and the shortcomings of financial regulators. The controversy showed some evidence of
catching fire in Washington on Tuesday as members of the powerful US Senate
Banking committee indicated that US Treasury Secretary Timothy Geithner and Fed
Chairman Ben Bernanke will be expected to testify about what and when US
regulators knew about the Libor manipulation and bank
malpractice.
"I am concerned
by the growing allegations of potential widespread manipulation of LIBOR and
similar interbank rates by some financial firms," Senate committee chairman Tim
Johnson said in a statement. "At my direction, the Committee staff has begun to
schedule bipartisan briefings with relevant parties to learn more about these
allegations and related enforcement actions."
"It is important
that we understand how any manipulation may impact American consumers and the
U.S. financial system," he said.
News reports at
the end of last week indicated that US banks JP Morgan Chase, Citigroup -- and
possibly Bank of America -- were the primary focus of inquiries by government
investigators.
The Libor rate
is used as a baseline interest rate for a range of financial products across the
world, from US credit cards and student loans to European mortgages and more
complex instruments. In total, Libor is estimated to set the price of lending
for over $550 trillion in loans, securities and
derivatives.
According to
Reuters, "By manipulating Libor, banks could have made profits or avoided losses
by wagering on the direction of interest rates. During the enormous liquidity
problems in the financial crisis they could, by reporting lower than actual
borrowing costs, have signaled that they were in better financial health than
they really were."
DT/ARA
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