Congress steps up rate-setting probe

A key House lawmaker said he plans to press both American bankers and U.S. regulators as Congress steps up its probe into a interest-rate-setting scandal that has erupted on both sides of the Atlantic.

Rep. Randy Neugebauer, the Texas Republican who leads the House Financial Services oversight subcommittee, said in an interview he was particularly concerned about the role regulators may have played in failing to monitor the situation, but that it’s “too early to draw any conclusions.”

Mr. Neugebauer on Monday wrote to the New York Federal Reserve Bank demanding transcripts of all communications the agency had with London-based Barclays Bank by the end of the week.

Barclays, the world’s fourth-largest bank, last week admitted in a $451 million settlement with British regulators to working with other banks to fix the London interbank offered rate, or Libor - the benchmark interest rate in turn affects rates on everything from home mortgages and car loans to credit cards and student loans. The revelations have already cost top Barclays executives their jobs and spawned angry hearings in Parliament.

“One of the concerns I have is we’re seeing signs that regulators knew about this,” Mr. Neugebauer said. “The question that is going to have to be asked is: If there was knowledge from regulators back when this first started happening, why is it just now coming to light? Why are we just now addressing it?”

In a sign this latest banking scandal is picking up steam on this side of the Atlantic, lawmakers on both sides of Capitol Hill say they plan to grill Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke in the coming days over the possible involvement of American firms and regulators in the scandal.

Officials with the Senate Banking and House Financial Services committees hinted Tuesday that Mr. Geithner and Mr. Bernanke will likely face questions about Barclay’s Libor scandal during their previously scheduled hearings this month.

“I am concerned by the growing allegations of potential widespread manipulation of Libor and similar interbank rates by some financial firms,” Senate Banking Committee Chairman Tim Johnson said in a statement.

Libor is not an officially set rate, but it is one the leading banks compile and report based on what they charge each other for loans. Internal Barclays communications suggest that the banks tried to manipulate the lending rate to help their own trading operations and improve their bottom line.

U.S. financial giants such as JPMorgan Chase and Citigroup are among the lenders who help determine the daily Libor rate.

The Justice Department has already begun a criminal investigation into the matter. In a statement, it said Barclays was the “first institution” to admit wrongdoing, indicating there may very well be more.

Consumer watchdogs say they wouldn’t be surprised if more U.S. banks are caught up in the scandal.

“I think it absolutely will spread to the U.S. at some level,” U.S. PIRG spokesman Ed Mierzwinski said. “I would not be shocked or surprised if it turns out that big U.S. banks were doing what Barclays was doing. They’ve continued to oppose transparency.”

The Libor scandal seems to be getting more attention in London than in Washington and New York. That may be because “British newspapers tend to put financial scandals on their front pages, not their business pages,” Mr. Mierzwinski said.

But that doesn’t mean Americans don’t care.

In the U.S., there is so much remaining “public cynicism” from the problems on Wall Street a few years ago and the ensuing financial reforms that consumers are no longer surprised by banking scandals, suggested Marcus Stanley, policy director at Americans for Financial Reform.

“I think people open the newspapers these days and say, ’Oh, the banks are cheating and exploiting the system. What else is new?’” he said. “They are well aware that there are problems in our financial system, so these revelations almost don’t come as a surprise anymore.”