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Royal Bank of Canada

MARK BLINCH/REUTERS

Royal Bank of Canada has joined the growing list of major global banks under pressure from American prosecutors in a probe into alleged manipulation of one of the world's key interest rates.

RBC was one of nine banks more recently served a subpoena by state prosecutors from New York and Connecticut related to their possible role in rigging Libor, or the London Interbank Offered Rate.

Gillian McArdle, a spokesperson for RBC, indicated that the bank believes its submissions were complete. "We have determined that our Libor submissions reflected our cost of funds," she said.

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New York Attorney-General Eric Schneiderman and Connecticut Attorney-General George Jepsen are investigating the banks to determine whether any conspired to manipulate the benchmark rate that is used to set more than $300-trillion of securities and loans. Over the course of the summer subpoenas that request communication with bank executives were sent out.

Other banks under the microscope are Bank of America, Bank of Tokyo Mitsubishi UFJ, Credit Suisse, Lloyds Banking Group, Rabobank, Société Générale, Norinchukin Bank and West LB, according to a Financial Times report. It is likely that these subpoenas were served over the summer, reports said.

This comes after earlier investigation efforts in June when Barclays Bank PLC was scrutinized by both British and US officials for manipulating the Libor (and Euribor) rate from 2005 to 2009. Barclays agreed to pay $453-million (U.S.) in fines in order to settle the brewing scandal. But the allegations outraged the markets and set in motion a bigger investigation to determine which other parties might have been submitting false information though the Libor process.

The prosecutors began by scrutinizing six other banks in addition to Barclays (Deutsche Bank, Citigroup, JPMorgan Chase, Royal Bank of Scotland, Barclays, HSBC and UBS), to total 16 firms now under investigation.

As recently as two weeks ago, Bloomberg issued reports that Libor was being set by the contributions of a shrunken group of banks, including RBC. The banks are meant to submit data to determine what interest rates banks should pay each other for short-term loans. The banks submit the estimated costs of borrowing over a variety of time periods. The British Bankers' Association compiles the data and published the Libor rate--but the reputation of the entire process is increasingly under question, and some groups feel that Libor may not be representative of the stability of the financial system.

Late this summer, U.S. Treasury Secretary Timothy Geithner commented that Libor reforms won't be "left to the British," but has not yet made any new comments.

Different groups of regulators and authorities in the U.K. and the U.S. have explored the idea of reforming Libor, or getting rid of it all together. However, the benchmark interest rate is deeply embedded in the financial system, and while it may be possible to evolve the system, the evolution could take years.

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