07/20/2012 12:21 pm ET | Updated Sep 19, 2012

Citigroup Manipulated Libor More Than Any Other U.S. Bank: Reports

So far Barclays has been the sad, British face of the Libor scandal, but there could soon come a day when an American bank could be the poster child for Libor manipulation. USA! USA!

Fortune's Stephen Gandel wrote on Friday about not one, not two, but three different studies that use charts and math to show that, of all the many banks just stone-cold manipulatin' Libor during the financial crisis, the champion Libor-mangler of all was apparently, drumroll please, Citigroup.

Citi did not respond to Fortune's request for a comment. It is no doubt one of 16 different banks, including fellow Americans Bank of America and JPMorgan Chase, getting the stinkeye from regulators over Libor.

Libor, for you Libor virgins who have somehow accidentally stumbled into this story, is an interest rate at which banks lend money to each other for short periods. It's the basis for hundreds of trillions of dollars' worth of loans and derivative contracts. Kind of a big deal, then.

The funny thing about this super-important rate is that it is almost completely bullshit. The banks who set Libor are on an honor system to report their borrowing costs, so you can see where this is going. Barclays was accused of manipulating Libor up and down, sometimes to help its traders make more money, other times to make its financial condition look healthier. Other banks are under investigation for allegedly having a cartel of Libor manipulators, helping each other make money on trades.

During the financial crisis, no bank in its right mind wanted to be seen as having to pay a high interest rate to borrow money, so they lied and lied and lied when setting Libor. Pretty much everybody was doing it, but according to the studies Gandel cites, including one by the Wall Street Journal back in 2008, Citigroup was often the biggest liar of all.

In each study, the banks' Libor submissions were compared to other measures of their borrowing costs. The bigger the gap, the bigger the lie. Citi was one of the weakest banks around at the time of the crisis, so it makes sense that it had to bend the truth about its borrowing costs more in order not to stand out from the pack of other banks setting Libor.

This doesn't necessarily mean that Citi will end up paying more than Barclays or other banks in fines or legal settlements, the high-end estimate of which has recently risen to about $35 billion. As Gandel points out, regulators may come down harder on banks that monkeyed with Libor purely for profit, as Barclays did.

Nobody has produced any evidence yet that Citi was doing that with Libor -- though Citi did get in hot water with Japanese regulators last year for allegedly manipulating Tibor, the Japanese version of Libor, purely to make money on derivatives.

Banks like Citi that were just doing what they had to do to get by during the crisis may be treated more kindly. Certainly the New York Fed and other regulators didn't lift a finger to stop Libor manipulation at the time. And the low rates helped borrowers, so almost everybody won!

Almost everybody, except for cities and states and school districts and other municipalities that had interest-rate swaps with banks. They suffered when rates were held artificially low, meaning Citi and others could still be slapped with lawsuits over even supposedly victimless rate fraud.

Bank Tied To Libor Scandal