The Senate Banking Committee is looking into the allegations that banks manipulated Libor, the London Interbank Offered Rate that is used by financial institutions to set interest rates for financial products, including interest rate swaps entered into by municipal bond issuers.

"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, D-S.D., said in a release. "At my direction the committee staff has begun to schedule bipartisan briefings with relevant parties to learn more about these allegations and related enforcement actions.

Johnson said he will ask Treasury Secretary Timothy Geithner and Federal Reserve Board Chairman Ben Bernanke about the Libor allegations at hearings scheduled for later this month.

Meanwhile, Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, said at a hearing Tuesday that U.S. federal regulators knew about problems with Libor during the financial crisis but failed to act.

"They knew there was a problem ... and they didn't do anything about it," Bachus said during the capital markets subcommittee's hearing on the impact of the Dodd-Frank Act.

The Federal Reserve Bank of New York said in a release on Monday that after the financial crisis began to unfold in 2007, it had "occasional anecdotal reports" from Barclays about problems with Libor.

The bank said that in the spring of 2008, it "made further inquiry of Barclays as to how Libor submissions were being conducted" and that it "subsequently shared analysis and suggestions for reform of Libor with the relevant authorities in the U.K."

Last month Barclays agreed to pay $453 million to U.S. and U.K. regulators to settle allegations that it manipulated Libor.

Barclays Bank and other major international banks are alleged to have colluded to keep Libor artificially low to give the impression that their borrowing costs were not affected by the financial crisis. As a result, Libor-related swap payments to issuers were reduced.

Industry sources estimate that municipal issuers have between $50 billion and $100 billion in Libor-related transactions, most tied to the one-month Libor rate.

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