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.

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