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Interbank Loan Probe Focuses on Yen Rates

Brooke Masters, Caroline Binham and Megan Murphy

Regulators probing alleged manipulation of interbank lending rates have expanded their investigation into yen rates in London and a separate rate-setting process in Tokyo.

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Led by the U.S. Department of Justice, regulators from the European Union, the UK, the US and Japan have been examining whether the London interbank offered rate, the reference point for $350,000bn (£213,000bn) in contracts, was rigged at the height of the financial crisis. Lawyers involved in the case have recently warned their clients, which include the biggest names in banking, to prepare for possible dawn raids by regulators.

In the fine print of its results announcement on Tuesday, UBS confirmed the investigation’s widened scope by disclosing that it had received “conditional leniency and conditional immunity” from the DoJ for turning over information on the setting of yen rates in London and of the Tokyo interbank offered rate, or Tibor, in Japan.

UBS said in its disclosure that it had received assurances that it would not be prosecuted or fined for the information it turned over to the DoJ about the yen rates as long as it continued to co-operate. But the Swiss bank added that the deal did not bar DoJ or other “government agencies from asserting other claims against us”.

The probe was previously thought to be centred on dollar-based rates in the UK.

Libor and Tibor are set, respectively, under the auspices of the British Bankers Association and the Japanese Bankers Association. A panel of banks are surveyed every working day at 11am local time about the rates at which they can borrow in various currencies. The top and bottom are thrown out and the remaining submissions­ averaged.

According to people familiar with the investigation, regulators are said to be probing whether traders used derivatives to place bets on future yen and dollar rates and then colluded with bank treasury departments, which help set the rates, to move the rates in their direction.

There have also been allegations that some banks understated the rate at which they could borrow in order to appear stronger during the 2007-2008 financial crisis.

Barclays has come under particular scrutiny for communications between its traders and treasury department that may have violated “Chinese wall” rules that prohibit information-sharing between different parts of a bank.

Securities regulators in the UK, Japan and the U.S. are all participating in the investigation, as is the UK Office of Fair Trading. The European Commission also demanded information from banks in May.