As criminal probes into the Libor rate-rigging scandal multiply, bankers are becoming increasingly worried that they might finally be held to account for their role in the global financial crisis.

Their fears were fuelled by a weekend report in The New York Times that the US Justice Department is preparing to launch criminal action against several big global banks and their employees. According to the report, the Justice Department has identified potential criminal wrongdoing by major banks and individuals at the centre of the Libor rate-rigging scandal. Its criminal division is now building cases against several financial institutions and their employees, including traders at UK bank Barclays.

Charges against at least one bank are likely to be filed later this year, unnamed government officials told the newspaper.

Earlier this month the UK Serious Fraud Office said that it also would be opening a criminal probe into the attempted rigging of Libor — the London Interbank Offered Rate. Libor, which is used as a benchmark for an estimated US$360 trillion of consumer and business loans and other financial securities, is based on estimates submitted by a group of banks on their borrowing costs. During the financial crisis, Libor was widely seen as a thermometer, with a high reading indicating that the banks were gripped by fever. Banks were desperate to report lower rates because they wanted to appear in better health than they were.

Senior UK politicians, including Chancellor of the Exchequer George Osborne and opposition Labour leader Ed Miliband, demanded a criminal probe after Britain’s second largest bank, Barclays, admitted rigging Libor and its euro equivalent, Euribor. The bank paid a fine of £290 million (US$450 million) and both the bank’s chief executive, Bob Diamond, and its chairman, Marcus Agius, fell on their swords.

The prospect of criminal action will rattle bankers who have already resigned themselves to paying tens of billions of dollars to settle civil lawsuits from regulators, and unhappy investors such as pension funds, which suffered losses as a result of the Libor manipulation.

Morgan Stanley analysts have calculated that the 12 global banks publically linked to the Libor scandal will ultimately pay up to $22 billion in fines and damages to investors. But the figure could be even higher, as the $22 billion does not include potential penalties imposed by the European Union as a result of its own investigation into whether banks colluded in setting the British Libor rate, the European Euribor rate and the Tokyo Tibor rate.

Last week, European Competition Commissioner Joaquin Almunia warned that these “investigations are at the top of our priorities because this type of collusion seriously threatens competition throughout the entire world and particularly on our continent”.

But for bankers the prospect of criminal proceedings — which could see them serving jail terms if they are found guilty — is far more worrying. Bankers are aware that there is immense public anger that they were not held to account for their role in the global financial crisis. They worry that criminal actions over the Libor rate rigging scandal — which they fear could turn into a banking witch-hunt — represent an ideal opportunity for US and UK politicians to boost their own standing by attacking banks.

Bankers aren’t the only ones under attack. In London and Washington, politicians are also having a close look at whether regulators turned a blind eye as the banks set about manipulating Libor. Last week a telling transcript of an October 2008 telephone conversation was released which recorded a Barclays employee telling an official at the New York Federal Reserve Bank that the Libor rate was “rubbish”. According to documents also released last week, US Treasury boss Timothy Geithner, who at that time was running the New York Fed, alerted UK authorities about problems with Libor.

It is unlikely the US and UK politicians will find that reassuring. In coming months, they’ll be putting UK and US regulators under intense pressure to explain why they didn’t do more to investigate the obvious problems with the Libor rate.

*This story was first published in Business Spectator