The Libor scandal gets more expensive for the banking sector almost by the day.

Banks may end up paying $35 billion in civil damages for manipulating Libor, according to a new report by analysts at Keefe, Bruyette & Woods, an investment bank specializing in financial services.

Relative to the size of the 16 banks at risk of lawsuits in the Libor scandal, $35 billion is chump change. But it will be another blow to the banks' ability to hold enough capital to satisfy higher regulatory requirements in the wake of the financial crisis. And the damage the Libor scandal does to the sector's ability to push back against regulations is priceless.

Among the group at risk are three U.S. banks reportedly under investigation for their role in setting Libor: Bank of America, Citigroup and JPMorgan Chase. KBW analyst Frederick Cannon estimated that JPMorgan may end up paying $4.8 billion, Bank of America $4.2 billion and Citigroup $3.1 billion to settle civil lawsuits over Libor.

KBW analysts warn that they are not legal experts and that such estimates are speculative. Legal settlements are also "likely years away."

These settlements would address only the lawsuits that will almost certainly be brought by hordes of plaintiffs, including cities and states that lost money in interest-rate swaps because of bank manipulation of Libor, a key interest rate often used as an index that affects borrowing costs throughout the economy.

This estimate does not include any penalties the banks might face at the hands of regulators, which could come much more quickly. Barclays, for example, has already agreed to pay $450 million to regulators to settle charges of Libor manipulation. It may still be on the hook for another $4.9 billion in civil damages, according to KBW's analysis.

This estimate comes less than a week after Morgan Stanley figured the banks may end up paying $14 billion in penalties and legal damages through 2014. The two estimates might not be inconsistent -- KBW said litigation may take more than five years to complete, and that the bulk of estimated damages could come at the end of that process.

While $35 billion is a lot of money to most of us, to the banking sector it is relatively small. JPMorgan's estimated $4.8 billion share, for example, would be less than the $5.8 billion estimated loss it took on the "London Whale" trades in credit derivatives. And the London Whale losses hit the bank in a matter of months, while the Libor losses could stretch out over years.