Executives and former executives of the Royal Bank of Scotland and Lloyds Banking Group are at risk of criminal action, including possible extradition to the United States, in the wake of allegations of interest-rate rigging, according to senior legal experts.
And the banks face even larger fines than Barclays' £290 million penalty over its involvement in the alleged cartel of banks that conspired to rig inter-bank interest rates.
Lloyds and RBS are being probed by multiple regulators around the world after allegedly joining Barclays and up to 20 other global banks to distort the core interbank lending rates – Libor.
William K Black, an associate professor of economics and law at the University of Missouri-Kansas City, told the Sunday Herald that anyone who is found to have manipulated Libor or condoned such practices at a senior level in a bank should face criminal prosecution. He suggested UK-based directors and staff, such as the former RBS chief executive Fred Goodwin, could be liable for extradition to the US.
Black, a world-leading expert on financial crime, said: "The reports of systematic falsification of Libor reports, if accurate, constitute felonies under US antitrust law that should be prosecuted vigorously, as should the systematic cover-up."
In the US, the Justice Department has confirmed its criminal division is investigating other banks.
Black added that Barclays' £290m fine was likely to be dwarfed by civil penalties exerted by the EU, which raided RBS's London offices as part of an anti-trust probe into Libor-rigging on October 18. Black said the involvement of EU, Canadian and US antitrust regulators mean much bigger penalties are in the pipeline. "The damages could be extraordinarily large," he said.
UK Justice Secretary Ken Clarke yesterday insisted bankers who have committed crimes must be brought to trial, as an urgent independent review into the inter-bank lending rate scandal was announced.
Scottish Justice Secretary Kenny MacAskill said last night that "if the Lord Advocate was so minded [to prosecute bankers], he would have the government's full support".
The review, to be set up by the Government next week, will consider how the Libor rate will operate in the future and whether criminal sanctions for manipulation can be introduced.
A short, urgent investigation would allow amendment of the Financial Services Bill currently going through parliament, a spokeswoman for the Prime Minister said.
However, Labour leader Ed Miliband dismissed it as a "sticking-plaster solution" and called for a full-scale public inquiry into banking culture and practices.
Ministers are considering setting up a separate review into the professional standards of bankers.
Prime Minister David Cameron said: "It's very important, above all, that government takes all of the actions necessary, holding bankers accountable, making sure they pay their taxes, making sure there's proper transparency, making sure the criminal law can go wherever it needs to, to uncover wrongdoing, all of these things need to happen."
Responding to the calls for an inquiry, he added: "Let's take our time, think this through carefully... That's what I'm determined to do, and that's what we will do."
Bob Diamond, chief executive of Barclays, has been summoned to appear before the Treasury Select Committee on Wednesday. And Serious Fraud Office investigators are in talks with the Financial Services Authority to investigate possible crimes.
On Friday, EU competition commissioner Joaquin Almunia confirmed its anti-trust investigation into alleged Libor manipulation was a top priority. Experts believe there could be a flood of litigation in the wake of the scandal. How residential motgages have been affected is not yet clear.
So far there is only evidence of attempts to distort Dollar Libor and the European Euribor rate – not sterling Libor, which is used to price certain UK buy-to-let, private bank and subprime mortgages.
If evidence that sterling Libor was also rigged, the 250,000 UK homeowners with Libor-linked mortgages stand a greater chance of successfully suing their bank, especially if they can prove they took out their loans on days when Libor rates were artificially inflated, implying their mortgage was set at too high a rate.
Cat MacLean, partner in Edinburgh law firm MBM Commercial, said: "We have a number of clients whose commercial lending is linked to Libor, who are considering their positions."
RBS and Lloyds are already named as defendants in several class actions in the US. In one such case being heard in the US District Court in San Francisco, lead plaintiff online brokerage Charles Schwab accuses RBS and other banks of violating anti-trust, racketeering and securities laws.
Several traders have been suspended by Lloyds and RBS as the investigations intensify. Tan Chi Min, a former RBS trader based in Singapore, is suing RBS after it sacked him over alleged attempts to manipulate Libor in 2007-11 to benefit his trading book. He has argued in court papers that senior management at RBS "were fully aware of this, condoned such conduct" and that he was in no position to manipulate the rate on his own. RBS denies this and continues to fight Tan's claim.
On Friday, The Times reported that RBS is facing a £150m fine but an RBS spokesman said: "The process is not as far advanced as the article suggests - RBS will continue to cooperate with the authorities."
A poll today finds that nearly 78% of people think that where banks have broken the law, individuals should be personally prosecuted. The survey, by Which?, also found 66% of people believe the Government will not act in their best interests when implementing banking reform.