The UK’s Royal Bank of Scotland and Lloyds Banking Group are accused of systematically rigging interest rates as the international scandal that has already engulfed Barclays continued to grow, media reports said.

Lloyds and RBS, both of which had been bailed out by the UK taxpayer in the wake of the 2008 financial market crash, have been accused of distorting the financial data used to set interbank rates, according to the Daily Telegraph, citing court documents it has seen on the matter.

At Barclays, its chief executive, Robert Diamond, is under pressure to resign after the firm admitted malpractices relating to how the LIBOR and Euro LIBOR rates are set. The UK’s Financial Services Authority has imposed its biggest ever fine - £59.5 million ($92.5 million) – on Barclays, and the sum formed part of a £290 million penalty imposed by the UK and US authorities on the bank. Shares in the bank have been hit; it is feared the scandal will also damage London’s reputation as a financial centre.

The DT said executives at HSBC is also being investigated alongside London-based financial firms for their role in the scandal.

Media reports said the UK’s Serious Fraud Office has started talks with regulators over potential criminal investigations into senior Barclays' executives and other bankers. Meanwhile, a former trader at RBS claimed that it was “common practice” among senior employees to make requests to fix the LIBOR rate - and that senior management knew about the tactic.

LIBOR

The scale of the scandal is huge because the London Interbank Offered Rate, to give the full name for LIBOR, is the basis for many of the interest rate, swaps and derivatives products that set the prices used to calculate financial products, such as mortgages.

More than 20 other banks are being probed by regulators around the world, reports said.

When contacted by this publication, Lloyds and RBS said they co-operate with the investigations but declined to make further comments.

LIBOR is calculated and published by Thomson Reuters on behalf of the British Bankers' Association each day; it is, according to one definition, a “trimmed average of interbank deposit rates offered by designated contributor banks, for maturities ranging from overnight to one year”. LIBOR is calculated for 10 currencies. There are eight, 12, 16 or 20 contributor banks on each currency panel (set up for the purpose of the LIBOR system). The reported interest is the mean of the 50 per cent middle values.

There have been concerns for several years that the LIBOR system might be vulnerable to malpractice and market manipulation. For example, in March 2007, a paper from academics at the University of Zurich, European Central Bank, Danmarks Nationalbank and Banque de France was entitled Manipulation in Money Markets.