UPDATE 1-U.S. senators call for more vigorous Libor probe
* Democrats ask for probe of banks and regulators
* Letter is toughest pressure yet on investigators
* Fed to release Libor documents on Friday
By Emily Stephenson
WASHINGTON, July 12 (Reuters) - A group of Democratic U.S. senators pressured Attorney General Eric Holder and financial regulators on Thursday to step up investigations into whether global banks manipulated benchmark interest rates.
The senators, including Carl Levin, Jack Reed and Dianne Feinstein, said investigators should also look into allegations that U.S. and foreign bank regulators may have been aware for years of wrongdoing in the setting of the London Interbank Offered Rate, or LIBOR.
Lawmakers in the United States have slowly become more outspoken about the allegations, which already have caused an uproar in London. The letter represents the toughest political pressure yet on U.S. investigators to find and punish banks and regulators that may have been involved in the scandal.
"Just like the banks and executives they oversee, regulators who were involved should be held to account for any failures to stop wrongdoing that they knew, or should have known about," the senators said in a letter dated Thursday to Holder, Treasury Secretary Timothy Geithner and members of the Financial Stability Oversight Council.
U.S. lawmakers from both parties began weighing in this week on the scandal, in which banks are said to have submitted false reports of inter-bank lending rates in attempts to influence the Libor.
Fiddling with the index could have allowed a bank to make profits or hide weakness, but it also could have skewed interest rates for a variety of consumer loans.
So far, Barclays Plc has been the only bank to admit any wrongdoing in a $453 million settlement with U.S. and U.K. officials, but more than a dozen banks are under investigation.
As early as 2007, the Federal Reserve Bank of New York may have discussed problems with the Libor with Barclays.
One Republican in the U.S. House of Representatives has asked the Fed for transcripts of its conversations with the bank and another said the scandal showed regulators failed to do their jobs.
The Fed will release documents on Friday that an official said will show it took "prompt action" to highlight problems with the benchmark and to press for reform.
The Democratic senators in the letter also asked investigators to assess the process for determining Libor and outline proposals for restoring market confidence in the index.
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