Lloyds, the UK bank now partly owned by the taxpayer, has been hit with the LIBOR affair after the New York Federal Reserve published emails sent by employees at Barclays referring to incorrect price submissions for inter-bank rates, media reports said.

The US Justice Department is conducting an ongoing criminal investigation into a number of financial organizations in connection with the LIBOR scandal that has already rocked London’s financial market.

“We are not going to comment on speculation by traders at other banks. In 2007, Lloyds was one of the highest rated banks in the world, with a triple AAA rating and was in a strong position in relation to funding itself in the markets, compared to some other banks,” Lloyds told Family Wealth Report in an emailed statement. “As with many others in the sector, the group is assisting various regulators in their ongoing investigations into the setting of the London Interbank Offer Rate. Until these investigations are completed, it would be inappropriate for us to comment any further."

The latest twist to the story comes more than two weeks after the Financial Services Authority and regulators in the US imposed a total fine of £290 million (around $450 million) on Barclays for manipulation of interbank interest rates. The scandal has seen the resignation of Bob Diamond, Barclays’ high-profile chief executive. He has testified to the UK parliament’s House of Commons Treasury Select Committee about the affair. When the FSA issued its announcement of the case, it said that other financial institutions were being investigated.

According to an email sent by a Barclays’ employee to the New York Fed on August 28, and reprinted on the NY Fed’s website, the person warned that US dollar LIBOR figures “look too low.” The information noted Lloyds’ submission of 5.48 per cent for three-month borrowing, whereas, the email said, “probably the lowest rate you could attract liquidity in threes would be 5.55 per cent.” “Draw your own conclusions about why people are going for unrealistically low libors,” the email said.

The NY Fed explained how, at the onset of the credit market crisis in 2007, it regularly monitored market communications.

“Suggestions that some banks could be underreporting their LIBOR in order to avoid appearing weak were present in anecdotal reports and mass-distribution emails, including from Barclays, as well as in a December 2007 phone call with Barclays noting that reported 'Libors' appeared unrealistically low,” the NY Fed said.

“The Barclays employee explained that Barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its LIBOR submissions, relative to other participating banks. The Barclays employee also stated that in his opinion other participating banks were also underreporting their LIBOR submissions. The Barclays employee did not state that his bank had been involved in manipulating the rate for its own trading advantage. Immediately following this call, the analyst notified senior management in the markets group that a contact at Barclays had stated that underreporting of LIBOR was prevalent in the market, and had occurred at Barclays,” the NY Fed added.

Lord Adair Turner, chairman of the FSA, has said the LIBOR manipulation represented a “huge blow” to London’s reputation. Many financial products, ranging from ordinary mortgages and savings through to structured products, make use of the interbank benchmark prices.