Two high powered committees, the Senate banking committee and the House financial services committee, are both believed to be considering calling Diamond to testify. Sources close to both committees said they were in the early stages of gathering information and were almost certain to call the former Barclays chief executive after the summer recess.
Senator Tim Johnson, chairman of the banking committee, said on Tuesday that his panel would quiz Federal Reserve chairman Ben Bernanke and Treasury secretary Timothy Geithner on the scandal at hearings scheduled before the August break.
"I am concerned by the growing allegations of potential widespread manipulation of Libor and similar interbank rates by some financial firms," said Johnson.
A spokesman for the Senate banking committee would not confirm plans to call Diamond. He said: "No decisions have been made beyond plans already outlined." A spokesman for Diamond declined to comment.
The US justice department is already investigating the scandal, and several cities and state pension funds have launched legal action, claiming that their investments suffered as a result of the manipulation of Libor rates.
Barclays is the first high-profile settlement with regulators, and last month was fined £290m ($450m) by regulators in the UK and US over allegations that it attempted to manipulated Libor. But more than a dozen other banks including Citigroup, HSBC and JP Morgan Chase are being investigated for their roles in setting Libor rates.
White collar crime expert William Black, professor of economics and law at University of Missouri Kansas City, said US action would soon escalate the scandal. "We have very tough disclosure laws. We already seen how horrific these people's emails can be, there's going to be a lot more where that came from," he said.
In emails already disclosed, Barclays traders referred to Libor "fixings" and appear to have colluded in manipulating the exchange rate. "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger," wrote one trader after a colleague helped him out.
In the first signs of the reputational fall-out of the crisis, which has left Barclays searching for a new chief executive and chairman, Barclays was dropped from a bond issue for Japan Bank for International Cooperation, because of its involvement in the attempts to fix Libor.
Barclays refused to comment on its role in the bond issue, although City sources noted it had been active in other bond issues in recent days, including for other Japanese issues such as Sumitomo and NTT.
Wayne State University law professor Peter Henning said the scandal had the potential to become "the signature financial fraud of the meltdown." He said the trigger point was likely to come if and when a US bank is fined.
Henning pointed out that the Justice Department's fraud division was looking after the case, not the anti-trust division.
"They are looking at this as a fraud case. That's much more serious for any individual involved. Given the amounts of money we are discussing, there could be serious jail time if anyone is convicted," he said.
Henning said he expected the scandal to become an increasingly hot political topic. Analysts in the City are attempting to calculate the potential cost of any litigation. Cormac Leech, an analyst at Liberum Capital, calculated that bailed out Lloyds Banking Group could face a bill of £1.5bn – 7% of its stock market value – in the eventual fallout from the affair.
About 45% of US mortgages are tied to Libor rates, and cities including Baltimore are claiming they have had to cut essential services as a result of losing money on investments tied to Libor.
"They are never going to say this, but the Obama administration would like nothing more than to charge a big banker ahead of the election," said Henning.
John Coffee, a Columbia Law School professor, said the scandal was proving as damaging for regulators as bankers.
The fallout from the scandal is already hitting Obama's team. Geithner was president of the Federal Reserve bank of New York when the alleged manipulations took place and was aware of some of the issues. Geithner held a meeting on April 28 2008 titled "Fixing Libor" and communicated his concerns to the UK authorities but no further action appears to have been taken.He also regularly spoke to senior figures at Barclays, including Diamond.
"If the Federal Reserve knew that Libor was being manipulated and sat there and tolerated it, it suggests they were more interested in their relationships with the banks than with consumers," said Coffee.
"When Republicans are being hammered for being too close to big business, what could be better than pointing fingers at Geithner?" said Black.
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