UPDATE 2-German watchdog readies Deutsche Bank Libor report-source
* Deutsche Bank to receive Libor report from Bank watchdog -source
* BaFin to send Libor report as soon as this week -source
* Deutsche Bank says it is cooperating with authorities
FRANKFURT, Aug 12 (Reuters) - German regulator BaFin has completed its report of Deutsche Bank's role in setting interbank lending rates and is set to submit a copy to the country's flagship lender this week, a source familiar with the matter said on Monday.
BaFin and other regulators are investigating more than a dozen banks and brokerages over allegations they manipulated benchmark interest rates such as Libor and Euribor, which are used to underpin trillions of dollars of financial products from derivatives to mortgages and credit card loans.
The bank watchdog is continuing aspects of its probe, but has found no evidence of wrongdoing on the part of members of the management board, the source added. BaFin has the power to force management board members to resign.
Nonetheless, further in-depth probes could still follow, the source said, "In some cases we have to dig deeper and ask, were some people really innocent?"
BaFin declined to comment.
Deutsche Bank on Monday said: "The Bank is cooperating in the various regulatory investigations and conducting its own ongoing review into the interbank offered rates matters."
The lender said that no current or former member of the management board had any inappropriate involvement in the interbank offered rates matters.
It added, however, that certain employees had taken action on their own initiative that fell short of the bank's standards. Deutsche has already dismissed or suspended seven employees involved in setting benchmark rates.
Reuters reported in April that BaFin would intensify its probe of the bank's role in setting interbank lending rates, citing two sources familiar with BaFin's report.
As part of its probe BaFin had been focusing on organisational issues. It has said that a key question was whether banks reacted quickly enough once the Libor problems became known, and whether they reached the right conclusions.
The BaFin report is expected to criticise "lax controls" at Deutsche Bank, the source added.
BaFin is working with the Bundesbank and accountant Ernst & Young on its probe, delving into suspected misconduct by individual traders and their counterparts at other banks.
The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011. Deutsche Bank's own internal investigation is being led by its legal department with the support of external counsel.
Deutsche has already made provisions for possible fines in the Libor case, sources close to the lender have told Reuters, while analysts see the likely exposure at less than 500 million euros ($667.57 million).
Swiss bank UBS and Britain's Royal Bank of Scotland have already paid a total of more than $2 billion to settle rate manipulation allegations.
Banks on the Libor panel are instructed to answer a hypothetical question regarding their expected borrowing rates, rather than submitting the actual market transactions.
As the credit crisis intensified between 2006 and 2008, allegations started mounting that Libor no longer reflected the real cost banks were expected to pay on the market. Authorities have been examining whether traders tried to influence the rate to profit on bets on the direction it would go.
Libor rates submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers' Association.
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