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Banks face criminal probe threat
Britain's biggest banks were facing the threat of a criminal investigation tonight over the rate-rigging scandal that could cost the industry billions of pounds.
The Treasury has started to look at strengthening criminal sanctions for those responsible for market abuse after Barclays was fined £290 million by UK and US regulators for manipulating the rate at which banks lend to each other.
HSBC and taxpayer-backed Royal Bank of Scotland are among several other lenders being investigated by the City watchdog for fixing the interbank lending figures that affect millions of homeowners and small firms.
Serious Fraud Office investigators are in talks with the Financial Services Authority (FSA) over the scandal while pressure is mounting on Barclays chief executive Bob Diamond to stand down.
Barclays saw shares slide 15% - wiping £3 billion from its market value - as investors ditched the stock amid fears the fines could be dwarfed by lawsuits and damages.
The banking sector is expected to remain firmly in the spotlight when the Financial Services Authority (FSA) discloses it has found evidence of mis-selling of complex financial products call interest rate swaps to small businesses.
Chancellor George Osborne told MPs the rate-rigging scandal was "a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis".
Turning to Mr Diamond, who waived his bonus for 2012 in light of the scandal, the Chancellor said: "As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today.
"What did he know and when did he know it? Who in the Barclays' management was involved and who, therefore, should pay the price?"
The controversy, which covers a period between 2005 and 2009, could spread to other lenders, as RBS, HSBC, UBS and Citigroup are also being investigated.
The penalties, including a record £59.5 million fine from the FSA, followed claims that Barclays manipulated the Libor - London interbank offered rate - and Euribor interbank lending rates.
The rates are set on wholesale money markets - where banks lend to each other - which in turn affects rates they pass on to customers through credit cards, loans and mortgages.
The British Bankers' Association (BBA) launched a review into Libor and how it was set in March. In a statement, the BBA said: "As part of this review we will now be asking the authorities to consider in what manner the Libor-setting mechanism should be regulated in the future."
The Chancellor confirmed the Government was already looking at Libor regulation in the context of wider financial services reforms and would consider changing the law so that bank fines go back to the taxpayer.
In the depths of the financial crisis, Barclays gave false information about the interest rates it had to pay to borrow money to paint a false picture of its health to markets.
Mr Diamond, who was in charge of Barclays Capital at the time the breaches occurred, apologised and said nothing was more important to him than "having a strong culture at Barclays".
Senior executives Jerry del Missier, Rich Ricci and chief financial officer Chris Lucas will also waive their 2012 bonuses.
A trail of emails, instant messages and phone transcripts disclosed by the FSA showed how traders requested Barclays make changes to the Libor rate to boost their profits.
Mr Osborne said the communications "read like an epitaph to an age of irresponsibility".
In one request for a change to the Libor rate, a trader said: "Coffees will be coming your way either way, just to say thank you for your help in the past few weeks". To which the Barclays' submitter responded: "Done, for you big boy."
The scandal is another blow to the beleaguered banking sector as it battles to restore its tarnished image in the wake of the financial crisis, the scandal of mis-sold payment protection insurance (PPI) and the computer problems at RBS which froze millions out of their accounts.
Sandy Chen, banking analyst at Cenkos Securities, said he was braced for billions of pounds in fines and damages across the banking sector.
He said: "We are pencilling in multi-year provisions that could run into the billions."
The pressure will mount tomorrow when the FSA is expected to disclose that it has found evidence that businesses were sold complex interest rate swaps without fully grasping the downside risks.
The swaps are complicated derivatives products that may have been sold as protection - or to act as a hedge - against a rise in interest rates.
Barclays is the first major financial institution to settle with regulators over Libor rigging following a wide-ranging investigation that has spanned North America and Europe.
Andrew Tyrie, chairman of the Commons Treasury Committee, said Mr Diamond would be summoned to account for what happened.