As part of its probe-happy new attitude, the SEC is investigating three banks for manipulating rates in order to mask their borrowing in the buildup to the financial crisis. The probe has been underway for at least a year, with twenty banks under investigation. But sources tell The Wall Street Journal that the focus is on Bank of America, Citigroup, and UBS. The SEC thinks they manipulated the London Interbank Offered Rate, or Libor. The rate is compiled daily from a sample of data from twenty giant banks on how much it costs them to borrow from other banks on the overnight markets. Libor, published around lunchtime each day by the British Bankers Association, is monitored as a gauge of banks’ funding costs. The SEC thinks those three banks may have deliberately skewed Libor by submitting inaccurate data from 2006 to 2008. Authorities want to know whether banks manipulated the rate to make their funding costs appear lower as the financial crisis intensified.
It’s still unclear whether the probe will result in either civil or criminal charges. All three banks have received subpoenas and summoned officials to testify to investigators. If this does result in some kind of public panel before Congress, we hope UBS’s Oswald Grübel wears a top hat to achieve full Arthur Slugsworth effect.