Bankers caught fixing the inter-bank lending rate Libor could in future face criminal charges after the European Commission announced plans on Wednesday (25 July) to widen the scope of the ongoing legislation on Market Abuse to include rate fixing.

Unveiling the proposals, which have been added to the Market Abuse legislation aimed at combating insider dealing and market manipulation, Justice Commissioner Viviane Reding accused those involved as acting as though they were "more banksters than bankers. Public confidence in banks have "taken a nosedive with the latest scandal," she said.

Among the changes to the legislative package, which was tabled by the EU executive last October and is currently being debated in the European Parliament, are amendments to include the manipulation of interest rates and other financial sector benchmarks.

Internal market commissioner Michel Barnier told reporters he would come forward with EU regulation specifically looking at the calculation of interest rates by the end of 2012.

The move follows public outcry about the Libor scandal which has engulfed Britain and the US in recent weeks. Addressing concerns that Eurlibor, the inter-bank rate for European banks, had been affected, Commissioner Barnier admitted that an investigation into possible manipulation was ongoing and had started in March 2011.

Libor, the inter-bank interest rate, determines the price of an estimated $800 trillion worth of financial instruments.

The scandal has already forced the resignation of Barclay's boss Bob Diamond after the British banking giant was fined £280m for its involvement in the case.

For his part, Barnier described the Libor crisis as "yet another example of scandalous behaviour by the banks" adding that the amendments had been prepared to "ensure that the manipulation of benchmarks is clearly illegal and is subject to criminal sanctions in all countries."

However, use of the sanctions will be determined by national governments, with Reding stating that the EU treaties only allow the EU to establish basic definitions for criminal conduct rather than minimum types and levels of sanctions to be implemented.

But she pointed to the four year review clause in the bill, commenting that failure by member states to apply sanctions in practice could lead to further reforms to "europeanise" the application of sanctions.

While regulators are still working out precisely when the manipulation started, analysts believe that the Libor rate was kept artificially low in 2008 and 2009 at the height of the banking crisis.

There is also expected to be a wave of law suits by businesses and public authorities against the banks, with analysts at investment bank Morgan Stanley estimating that the major banks will face a €12 billion bill in compensation and legal and regulatory costs.

Arlene McCarthy, the centre-left MEP drafting Parliament's position in the Economic and Monetary Affairs committee, backed the move, saying that "the EU cannot be seen to be the soft option or a safe haven for what is clearly criminal behaviour".

McCarthy said the package must establish "a robust legal and regulatory framework to prevent future manipulation or abuse and its potentially devastating consequences for the European and global economy."