The suggestion that major banks have sought to game the London interbank offered rate should come as no surprise. But UBS AG's admission that it and possibly other institutions are being investigated in the U.S. for potential manipulation of the interest rate benchmark could still ripple through the financial system.

Over the past three years, analysts have regularly cast a skeptical eye on the accuracy of Libor, which is calculated by averaging 16 global banks' self-reported borrowing costs. Even in times when some individual banks' credit-default swap rates soared — showing the market deemed those institutions riskier than the rest — the 16 panel members' contributions to Libor remained in near-lockstep.

During the financial crisis and its aftershocks, this situation benefited the reporting banks and borrowers. Banks could ill afford any perception that their global peers were afraid to lend to them. Millions of homeowners and other borrowers whose payments were tied to Libor were struggling enough already. But the statistic's moves were hardly intuitive.

"I started calling it Lie-bor in late 2008," said James Bianco, the president of Bianco Research, noting the lack of documentation that accompanied each bank's contributions to the benchmark. "At the end of the day, a lot of these companies did not want to show that their funding rates were diverging from the pack."

UBS was one bank that invited particular scrutiny, Bianco said, simply because of its mammoth size in relation to Switzerland's central bank. "There was concern that they were too big for the Swiss government to handle," he said — but those fears were never really reflected in the company's Libor rate contributions.

UBS, which disclosed the probe by the Commodity Futures Trading Commission, Securities and Exchange Commission and Justice Department on Tuesday, said it is cooperating with the investigators' review. "The investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor rates at certain times," the company said.

To generate Libor, the British Bankers Association collects quotes of hypothetical borrowing costs from a set of 16 top banks daily, throws out the four highest and four lowest numbers, and calculates the mean.

Even before Lehman Brothers' failure in 2008, The Wall Street Journal wrote that some banks appeared to be taking out loans at costs above those they were reporting to Libor. American Banker noted the renewed implausibility of Libor last May, when the European institutions most stricken by the Greek debt crisis reported that their funding costs were all but identical to those of Royal Bank of Canada.

There was good reason for authorities and others not to have publicly scrutinized the rates too much during the crisis, Bianco said: it was in no one's interest for Libor rates to spike, or for authorities to launch an investigation suggesting that banks were in an even more precarious situation than they already appeared.

But two years after the stock market's 2009 low, CDS spreads suggest that much of the interbank divergences have quieted, Bianco said, making it far less disruptive to review the system.

"At the moment, I don't think a lot of people are concerned that it's too far from reality," he said.

The British Bankers Association said Tuesday it is "committed to retaining the reputation and integrity of BBA Libor, which continues to be the authoritative benchmark of the wholesale money market. We observe rigorous standards in our scrutiny and governance of the Libor mechanism, and work with the industry to ensure their continued full confidence."

While scrutiny of Libor would be unlikely to meaningfully alter the real-world rates it influences in the near term, Bianco said the approach large banks take to calculating the index could become significant as interest rates rise or the banking industry is subject to another shock. Doubts about Libor's reliability could potentially cause a different metric to be written into contracts as the benchmark for setting rates. Such concerns caused the industry to shift away from certificate of deposit-based indexes and from the prime lending rate before that.

"The question becomes, when the Fed raises rates, when stress is built back into the system, will Libor remain an accurate benchmark? And unfortunately, we don't know," Bianco said. "A short-term loan may get reset at levels that people weren't expecting."