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."
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