A document submitted by Federal Reserve Bank of New York indicates that Barclays PLC (NYSE:BCS) (LON:BCS) reported that banks are underreporting the benchmark for the London interbank offered rate (Libor), since 2007. However, both regulators in New York and London did not take immediate action to resolve the issue.

Based on the document, a Barclays PLC employee admitted to the NY Federal Reserve that the bank is underreporting its Libor rate to avoid the “stigma associated with being outlier” indicating that other banks are doing the same thing.

A transcript of the telephone conversation between the New York Feds and a Barclays employee on December 27, 2007 reads, “”You know, LIBOR is being set too low anyway…” Following on April 11, 2008, the transcript reads, “We just fit in with the rest of the crowd, if you like… We know that we’re not posting um, an honest Libor.”

The Federal Reserve Bank of New York published its actions related to the Barclays-Libor issue after the U.S. House of Representatives, Committee on Financial Services, Subcommittee on Oversight and Investigations chaired by Congressman Randy Neugebauer requested information including transcripts of communications between the agency and bank from August 2007 to 2009. On the other hand, legislators in United Kingdom will be conducting hearings regarding the issue next week.

Cong. Neugebauer says that the Libor manipulation should be taken seriously. The lawmaker said the Congress is currently reviewing the documents submitted by the Feds. After examining the documents thoroughly, they will  decide how to proceed with the investigation to determine who is involved and whether regulators could have prevented the scandal.

Documents submitted to Congress include an e-mail sent by U.S. Treasury Secretary Timothy Geithner then head of the New York Fed to Bank of England Governor Mervyn King in June 2008. The e-mail contains recommendations to prevent misreporting to improve the credibility of Libor. According to the correspondence issued by the Bank of England today, the recommendations of Geithner were forwarded to the Bristish Bankers Association.

One of the proposals of Geithner is to subject Libor submissions to internal and external audit to ensure the accuracy of the reporting by banks.

Barclays agreed to pay fines of $450 million dollars to settle the charges filed against the bank in connection with the Libor scandal. Other big banks involved in the Libor rigging practices include Citigroup Inc. (NYSE:C), JPMorgan Chase & Co (NYSE:JPM) and Deutsche Bank (NYSE:DB). The list keeps getting longer, in what looks like the biggest financial scandal in history.