Recent Libor Settlements Are Just Tip of the Iceberg

The web of Libor conspirators is growing.

Deutsche Bank has suspended five more traders in conjunction with a widespread investigation into interest-rate rigging that took place during the financial crisis and beyond, according to a person familiar with the matter. The five suspensions come in addition to two traders claimed by previous iterations of the review, the person said.

The suspensions at Deutsche Bank come in addition to a near-historic Libor settlement at Royal Bank of Scotland. On Wednesday, RBS said it would pay roughly $612 million in fines to regulators in the face of criminal charges that the bank, which is 81 percent-owned by the UK government, manipulated various "Libor" benchmarks.

(Read More: RBS Hit by $612 Million Fine on Libor Scandal.)

Shorthand for the "London interbank offered rate," Libor is a key measure that sets the basis for interest rates on various global financial instruments. Eighteen banks submit estimates for US Dollar Libor on a daily basis, and an average is chosen.

Of those 18 banks, at least a dozen are under investigation by regulators, sources have said – and only three banks, thus far, have reached settlements on the matter.

In total RBS, Barclays and UBS will pay nearly $3 billion in fines stemming from the multi-year practice of artificially suppressing these benchmark interest rates, a practice that spanned the financial crisis and beyond.

While the fines vary, the charges are becoming more egregious. Barclays was the first bank to settle, paying $450 million to multiple regulators after e-mail traffic showed BarCap traders colluding with those at other banks in an attempt to keep Libor lower.

(Read More: How Could Libor Regain Credibility?)

Royal Bank of Scotland
Getty Images
Royal Bank of Scotland

At RBS, some 21 traders engaged in not just attempted but "successful" manipulation of the rates. According to regulatory documents out Wednesday, RBS sought to suppress rates from March 2005 to 2012, continuing the practice for nearly a year after being subpoenaed for documents relating to the manipulation. RBS is also the first bank to plead guilty to criminal charges.

Switzerland's UBS agreed to pay a record $1.5 billion fine in December over charges it manipulated benchmark rates across seven separate currencies. Regulatory sources believe no bank's fine will top that of UBS.

Many commentators have observed that low rates, ultimately, are good for consumers: Interest rates paid by borrowers on credit cards and mortgages are based off of Libor. A lower Libor, then, means lower interest.

(Read More: Banks Guilty of 'Brazen, Flagrant' Manipulation: CFTC)

But the wider the practice is found to have taken place, the greater the fury of investors – and the bigger the bevy of lawsuits that will lay ahead. In July, BlackRock, Fidelity and Vanguard – three of the country's largest money managers, with more than $7 trillion in assets under custody – announced they would pursue litigation for lost fees. Fannie Mae and Freddie Mac, too, reportedly estimated that Libor errors cost the mortgage giants $3 billion, due to artificially lower mortgage rates.

USD LIBOR Panel Banks

Bank of America Bank of Tokyo-Mitsubishi
UFJ Ltd.
Barclays Bank plc BNP Paribas
Citibank NA Credit Agricole CIB
Credit Suisse Deutsche Bank AG
HSBC JP Morgan Chase
Lloyds Banking Group Rabobank
Royal Bank of Canada Soci

Several states are launching inquiries as well; officials believe that losses to taxpayers, pension systems and endowments could top $6 billion, according to a recent Pew report. New York and Connecticut attorneys general have teamed to investigate the effort, which in 2012 subpoenaed at least nine banks, according to a person familiar with the matter. According to Pew, Maryland is contemplating whether to launch a formal investigation, while other states have quieter investigations that are ongoing.

Massachusetts, Florida, and North Carolina have launched their own reviews into the practice. N.C. state treasurer Janet Cowell has said she expects the Libor matter could be more costly to banks than the mortgage mess. (The five largest U.S. bank settled in June 2012 for $25 billion over faulty foreclosure practices.)

As the investigations and lawsuits unfold over the course of the next year, regulators are sending what CFTC Commissioner Bart Chilton on CNBC's "Squawk Box" called a "serious and significant message: Don't mess with the markets."

(Read More: Chilton's OpEd: RBS and Whack-A-Mole)

By CNBC's Kayla Tausche; Follow her on Twitter: @KaylaTausche