* Bank gets conditional leniency, immunity in some cases
* Leniency is in return for continuing cooperation
* Probe concerns all 16 LIBOR-reporting banks
* DoJ agreement could let UBS limit liability in civil cases
By Martin de Sa'Pinto
ZURICH, July 26 Swiss bank UBS said it had been granted leniency or immunity from potential violations by some authorities, in return for its continuing cooperation in an ongoing LIBOR manipulation probe.
The bank declined to specify on Tuesday what information it was providing to the authorities or elaborate on how it was cooperating.
U.S. and Japanese regulators were reported earlier this year to be investigating "improper attempts" to manipulate LIBOR rates, particularly between 2006 and 2008.
The probe includes all 16 banks, among them Barclays , Bank of America , Citigroup , and Credit Suisse , that help the British Bankers' Association (BBA) set the London Interbank Offered Rate (LIBOR), the benchmark price for interbank borrowing costs.
About $350 trillion of financial products globally reference Libor. Lower levels for the rate could have robbed lenders and investors of significant amounts of interest income, while borrowers would have benefited.
The period in question encompasses the subprime crisis as well as the liquidity crisis, when overnight lending between banks dried up as they began to question the quality of their peers' loan collateral.
UBS said it had been told that authorities including the U.S. Department of Justice Antitrust Division had granted it conditional leniency or conditional immunity connected to possible violations related to its yen Libor and euro-yen TIBOR (Tokyo Interbank Offered Rate) submissions.
"As a result of these conditional grants, we will not be subject to prosecutions, fines or other sanctions for antitrust or competition law violations in connection with the matters we reported to those authorities, subject to our continuing cooperation," UBS said in its latest financial statement.
"However, the conditional leniency and conditional immunity grants we have received do not bar government agencies from asserting other claims against us."
The agreement with the U.S. Department of Justice could allow UBS to limit its liability in any civil litigation to the actual amount of damages awarded, rather than the punitive level of up to three times the amount, the bank said.
Banking sources however said it was in the interests of central banks to keep a lid on LIBOR during the financial and liquidity crises, and were lobbying commercial banks to keep borrowing costs down.
"There was the fear that if LIBOR went up a large number of ARMS (adjustable rate mortgages) would reset at meaningfully higher rates and default rates would explode," said a source from one of the 16 reporting banks who declined to be named.
During the liquidity crisis, when banks were reluctant to lend to one another, central banks stepped in to fill the void.
"To bring down Libor, central banks can do one of two things: they can reduce the base rate or flood the market with liquidity, and in this case they did the latter," he said.
(Editing by Elaine Hardcastle)