Justice Department has initiated a criminal probe of banks that have been manipulating the Libor, a benchmark for trillions of loans worldwide.

The keyword here is criminal, because doing such a probe already presumes that a crime has been committed and the only thing needed are the facts.

“Several major global banks,” reports Reuters, “including Citigroup Inc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG, have disclosed that they have been approached by authorities investigating how Libor is set.”

Canadian court has already looked at the same issue and is said to have a willing party that has disclosed how certain banks have manipulated Libor.

The unnamed bank, seeking immunity, told the Canadian court that JPMorgan Chase, Deutsche Bank and HSBC are among the 7 banks that were manipulating Libor.

Documents looked at by Bloomberg say that Canada is investigating Citigroup, Royal Bank of Scotland Group, ICAP and RP Martin.

In December of 2011, Japan has penalized UBS and Citigroup because their employees “repeatedly asked bankers to change the rates they submit for setting Tibor to gain an advantage“.

People say that during the escalation of the Eurozone crisis, a noticeable discrepancy arouse between interbank dollar costs and the quoted Libor rate: the actual cost of borrowing dollars was way higher then what the banks reported to the Libor setting body in London.

“Various European banks are currently bidding to pay higher rates for short-term money than what they post to the British Bankers’ Association’s daily survey of participants in the interbank market, people who trade in that market say. That means their real cost of borrowing is considerably higher than the London interbank offered rate,” wrote the Wall Street Journal in November 2011.

Like some of these indebted European nations, US is dealing with its own debt issues yet interest rates are way lower in the US.

“Why are interest rates on U.S. sovereign debt so much lower than those of Greece, Italy, Portugal, Ireland, and Spain?” asks Cleveland Fed in its latest Economic Trends issue.

Difference in debt/GDP and/or growth prospects are not good reasons, says the Fed, even though these are often cited as so.

Spain’s debt/GDP is smaller then the US while Ireland’s is similar yet these countries are struggling with the funding. There is also a very similar average debt maturity between US and European debt.

Neither are US growth prospects sufficient enough to reduce the debt.

So what accounts for the big bond spread between the US and the troubled Europeans?

Bank balance sheets and demographics of sovereign bond holders.

Europe’s bad bank balance sheets triggers government intervention so that the reacpitalization quickly increases country’s sovereign debt. The link between banks and the government is much stronger in Europe than in the US: claims of domestic banks on their government debt exceeds 20% of GDP in Europe while banks in the US claim only 8% of US debt.

US also has a larger share of domestic holders and foreign official holders then Europe which gives a stable investment base. Domestic holders tend to shift away much less during bond price fluctuations.

Safe haven and credibility are additional reasons for the spreads.

“The reason U.S. Treasury securities command lower interest rates than say Zimbabwean government securities is partly because both the U.S. government and the Federal Reserve have each made credible commitments; the government pledges to keep the debt at a sustainable level and the Federal Reserve assures that it will not monetize away the debt,” writes Fed.

For how long, though?