Nine of the world's biggest banks are facing increased scrutiny from US state prosecutors probing alleged attempts to manipulate the lending gauge known as Libor.
Eric Schneiderman, New York attorney-general, and George Jepsen, Connecticut attorney-general, have sent subpoenas to Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds Banking Group, Rabobank, Royal Bank of Canada, Société Générale, Norinchukin Bank and West LB as they investigate whether the banks participated in any schemes to rig the London Interbank Offered Rate, a person familiar with the matter said.
The financial groups join Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Barclays, HSBC and UBS to increase the number of banks under examination by the two state prosecutors to 16.
The banks have either declined to comment, could not be reached for comment or have not responded to requests for comment. Several have disclosed various Libor-related investigations to investors and have said they are co-operating with government probes.
The civil investigative demands for documents and records of communications started this summer. The state legal officers want to examine whether the banks colluded to fix interest rates determined by Libor, damaging the states' borrowers and investors as a result.
Their investigation follows separate probes by prosecutors and regulators in countries across three continents including the U.K., Canada, Japan and the U.S., who are examining possible collusion by large financial groups to manipulate benchmark rates.
The most popular of the rates, known as Libor, is based on self-reported borrowing costs for unsecured loans between banks and is used to price hundreds of trillions of dollars' worth of financial instruments including home mortgages and derivatives. Authorities are investigating whether the financial institutions were attempting to manipulate Libor from 2005 to 2009, officials have said.
In June Barclays agreed to pay U.S. and U.K. authorities roughly $450m to settle allegations it had attempted to manipulate Libor. Since then targeted traders have been suspended or fired as banks have acknowledged receiving demands for further documents and lawyers representing aggrieved homeowners, local governments and other financial groups have prepared or launched lawsuits aimed at recovering alleged losses.
U.K. authorities have suggested reforming Libor. The U.S. Commodity Futures Trading Commission has questioned the accuracy of Libor and its chairman, Gary Gensler, told the European parliament that data collected by his agency suggested that the rate continues to be flawed and needs reform or should be scrapped entirely.
Unlike US federal prosecutors, Mr Schneiderman is armed with his state's Martin Act, a 1921 New York law considered one of the country's most powerful prosecutorial tools. The law allows Mr Schneiderman to investigate anyone doing business in New York and to bring cases without having to show that the accused intended to commit fraud. It also allows him to operate across state lines, essentially acting on behalf of investors across the U.S.
Most of the world's major financial groups conduct business in Manhattan, home to Wall Street. The city's role as a global financial center has given state regulators added power in targeting banks. Mr Schneiderman has sued large banks for alleged mortgage-related misdeeds. The state's Department of Financial Services in August used its clout to secure a $340 million fine against New York-licensed Standard Chartered, despite federal authorities cautioning against the move.