This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Probe Widens in $350 Trillion Bank Scheme: Report (Update 1)

Stocks in this article: CSUBSBACRBCHBC

Story updated to include comments from UBS and Credit Suisse in the final two paragraphs.

NEW YORK ( TheStreet) -- A manipulation probe into the $350 trillion financial market tied to short term interest rates like the London Interbank Offered Rate is growing, with Swiss banks Credit Suisse (CS) and UBS (UBS) coming under increasing scrutiny.

Swiss Swiss competition watchdog Comco is looking at whether banks manipulated the benchmark rate known as Libor, according to a Bloomberg report. Libor is a key reference rate for short-term bank funding, interest rate swaps, corporate bonds and even consumer financial products like adjustable rate mortgages.

The investigation adds to a July 2011 probe launched by the U.S. Department of Justice and Japanese regulators into the market, which focuses on 16 large banks including Barclays (BCS), Bank of America (BAC) and Citigroup (C)

The investigations focus on whether the banks involved in the colluded to report lower borrowing costs during the financial crisis, keeping Libor and sshort term borrowing from rising substantially. Investigations have ties to a financial crimes task force launched by President Obama in January to prosecute frauds that intensified the housing crisis because the rates are a key to consumer related financial products like ARM mortgages.

The Swiss regulator said that derivative traders might have influenced Libor and its Japanese equivalent, Tibor. "Market conditions regarding derivative products based on these reference rates might have been manipulated too," said Comco in an emailed statement obtained by Bloomberg.

At the onset of the financial crisis in the summer of 2007, overnight rates like Libor spiked as banks faced a cash squeeze, prompting the Federal Reserve and other central banks around the world to launch emergency liquidity facilities.

Even with funding help from the Federal Reserve and its peers, overnight rates continued to rise with the failure of Bear Stearns and Lehman Brothers, adding to the borrowing costs of banks and increasing questions on their health.

Keeping overnight interest rates artificially low could have also helped banks keep payments on derivatives like interest rate swaps from spiking, while also stopping consumer financial products like adjustable rate mortgage rates from rising, potentially exacerbating loss causing defaults. The Swiss and U.S. - Japanese probes focus on possible irregularities on the rates leading up to and during the financial crisis.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,614.81 +215.14 1.31%
S&P 500 1,941.28 +37.27 1.96%
NASDAQ 4,419.4780 +103.4040 2.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs