By Karen Freifeld and Lindsay Dunsmuir
WASHINGTON/NEW YORK (Reuters) - Deutsche Bank (DE:DBKGn) (N:DB) will pay U.S. and British authorities $2.5 billion and its London subsidiary will plead guilty to wire fraud for manipulation of benchmark interest rates, U.S. authorities said on Thursday.
As part of the deal, Germany's largest bank also entered into a deferred prosecution agreement with the U.S. Justice Department and admitted its role in manipulating the London Interbank Offered Rate (Libor).
The penalty is the largest in a seven-year investigation into how banks secretly conspired to rig benchmark interest rates to their benefit.
Libor and related benchmarks are used to set interest rates for trillions of dollars' worth of loans around the world, from mortgages and student loans to credit cards and complex derivatives.
Five other major financial institutions have admitted to misconduct, and 21 traders and brokers have faced criminal charges.
While some employees involved in misconduct have left the bank, Deutsche agreed to terminate or ban other employees from the New York banking system, according to New York state's Department of Financial Services.
"Markets do not just manipulate themselves," Benjamin Lawsky, superintendent of the New York regulatory agency, said in a statement. "It takes deliberate wrongdoing by individuals."
The $2.5 billion penalty includes $600 million to the New York regulator, $800 million to the U.S. Commodity Futures Trading Commission, $775 million to the U.S. Justice Department and $344 million to the UK's Financial Conduct Authority, authorities said.