Net borrower banks targeted in Libor probe

INVESTIGATIONS into the possible “manipulation” of data relating to the London Interbank Offered Rate (Libor) are likely to focus on banks that were net borrowers during the financial crisis rather than lenders, an industry source told City A.M. yesterday.

UBS has said that it was subpoenaed by US and Japanese regulators regarding Libor investigations. Barclays, Bank of America and Citi are also thought to have been subpoenaed.

But banks that were net lenders would have no reason to falsify their borrowing costs, according to the source. Banks with heavy borrowing requirements, by contrast, may have had a motive to give falsely low estimates of their costs in order to avoid spooking investors. Of course, this doesn’t mean they actually did this.

Libor is calculated from data submitted to the British Bankers’ Association (BBA), all of which is published. Its publication means the investigation will consider whether collusion between banks took place, because it would have been risky for any firm to submit faulty numbers that it knew others might challenge.

Since UBS was subpoenaed, there has been widespread speculation over which other banks are being probed.