Were the banks running a Libor 'cartel'?

By late tomorrow we'll have a good idea on how the important, but widely discredited system of setting interest rates between banks, the Libor, is to be reformed.

Martin Wheatley, the City regulator, will deliver his report on Friday suggesting how rates should be set in future. Sure, it's technical, but the rate is used as a benchmark for mortgages, credit cards, loans and all sorts of other transactions that reach into all of our lives. And it's abundantly clear that the old system, so abused by traders at Barclays and other banks, will not survive. The British Bankers Association which used to run it has made plain they no longer want a part in it.

But compelling evidence is emerging far from the Square Mile that suggests not just that traders at other banks were involved too, but that some were colluding. Court papers filed in Singapore show the electronic messages from a former RBS trader, Tan Chi Min, who was fired from the bank during an internal probe of alleged fixing of the rate. According to Bloomberg, his messages said, "It's just amazing how Libor fixing can make you that much money or lose if opposite," in one conversation he said, "Nice Libor," "Our six-month fixing moved the entire fixing, hahahah."

Significantly he describes the extent of rate fixing in London as 'It's a cartel'. The messages are not just between RBS colleagues, but also traders from Deutsche Bank, suggesting that banks were indeed colluding to fix the rates. Tan is suing the bank for wrongful dismissal and alleges that the problem was well known by RBS management. The bank disputes his allegations and have asked the court to seal the papers while investigations by authorities here in the UK and the US continue.

Barclays have already lost a chief executive over this and been hit with hundreds of millions of pounds in fines. RBS has made clear it expects to be penalised soon. Many other banks are still being investigated by authorities right around the world, and the Serious Fraud Office are considering whether to charge anyone for the abuse in the UK.

But one former City insider suggests public evidence that suggests Tan's suggestion different banks were working together in a 'cartel' potentially move this into a quite different territory.

Penalties for operating a cartel under competition law can be multiples of profits or turnover, potentially much bigger financial punishments than we have seen already. While speculation is mounting over how the regime of setting rates will look in the future, the industry is no where near being able to forget the mistakes of the past.