© Phil Noble/ReutersA branch of Barclays bank is seen in northern England.
It may seem like just another obscure banking scandal at a 322-year-old British bank, but there are a number of good reasons why you should care about the LIBOR rate-rigging scandal now roiling the world's biggest and most powerful banks, including that it probably cost you money if you own a mortgage.

In late June Barclays paid $453 million to regulators in the U.K and the U.S. to settle accusations that it had tried to influence LIBOR, or the London interbank offered rate -- a benchmark interest rate that affects the price at which consumers and companies across the world borrow funds.

The rate, which is fixed via a poll of banks by the British Bankers' Association, an industry group in London, is the benchmark for setting payments on some $360 trillion worth of financial instruments, ranging from credit cards to more complex derivatives, such as futures contracts.

The potential scope of the unfolding scandal, now acquiring global significance, is enormous. Economists and analysts predict it could be one of the most expensive scandals to hit the banking sector since the financial crisis, engulfing more multinational banks with fines that dwarf the one handed to Barclays and further eroding investor confidence in the banking sector.

It has already claimed the heads of the top leaders at Barclays -- Chief Operating Officer Jerry del Missier, Chairman Marcus Agius and Chief Executive Bob Diamond -- and more heads at major banks are likely to roll, said Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corporation, a government agency designed to promote public confidence in banks.

"It depends on how pervasive it was at the other institutions," Bair told CNBC. "It sounds like it was pretty widespread."

Bart Naylor, an expert in financial regulation at the consumer advocacy group Public Citizen, said that a wave of investor lawsuits seems inevitable, especially here in the U.S.

Naylor said he can envisage a scenario where investors still involved in contracts that were set with erroneous LIBOR rates could call the contract null and void because it was built on incorrect information. There are likely thousands of such arrangements, he said. With more bank profits coming from derivatives trading as opposed to traditional interest incomes from loans, the potential for class action suits is significant, he said.

The potential avalanche of lawsuits has already started.

Last year the city of Baltimore sued a handful of major banks in federal court in New York, including Bank of America, JPMorgan Chase and Deutsche Bank, claiming those institutions conspired to manipulate LIBOR, which affected the city's purchase of hundreds of millions of dollars in interest-rate swaps to hedge against changes in interest rates.

The Baltimore suit has since been consolidated with those filed by other municipalities, pension funds and hedge funds.

Darrell Duffie, a professor of finance at Stanford University's Graduate School of Business, said he expects any lawsuits arising from the LIBOR scandal to cost banks in the region of billions of dollars, or tens of billions of dollars. He cautioned that it's difficult to say which, given that at this point we do not yet know the ultimate extent of the participation of other banks in the LIBOR distortions.

"Also we do not yet know how difficult it will be to attribute how much of the distortion in LIBOR is due to the actions of each particular bank," he said, adding that he does expect some lawsuits to be effective in these areas. "But the total damages are very hard to estimate until more of the evidence appears."

Robert Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton administration and now chairman of Sonecon, an economic advisory firm, warned Wednesday that the LIBOR scandal could become the largest financial fraud in history.

Shapiro wrote in a blog Wednesday that "coming on top of the reckless and dishonest behavior that led to the 2008 financial collapse, the LIBOR manipulations should finally dispose of the conservative case for self-regulation by Wall Street."

Shapiro notes that LIBOR was off by an average of 30 to 40 basis points for several years (one hundred basis points is equal to one percentage point in an interest rate) -- enough to add $50 to $100 to the monthly cost of a $100,000 loan. He also notes that, between 2007 and 2008, Americans held $11.1 trillion in outstanding residential mortgage debt. During the time of the alleged manipulations between 30 percent and 40 percent of that debt carried adjustable rates, Shapiro said.

"If the bankers' manipulations of the LIBOR was responsible for raising LIBOR rates by just 20 basis points in that period, their shenanigans added between $1.1 billion and $2.2 billion to the yearly interest paid by American homeowners," he said. "And those mortgages account for less than one percent of all of the financial assets and instruments affected by manipulated LIBOR rates."

Now only are banks under scrutiny, regulators are also under the microscope over the LIBOR scandal.

The Federal Reserve Bank of New York said Tuesday Barclays informed it about issues with LIBOR as early as August 2007, saying in a statement that it received "occasional anecdotal reports" from Barclays of problems with the lending rate.

The disclosure comes as Washington lawmakers start to probe how regulators handled the LIBOR scandal. On Tuesday, the Senate Banking Committee said it plans to hold meetings with individuals involved with the matter to learn more about the allegations and related enforcement actions. Those individuals include Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner, according to a statement.

"It is important that we understand how any manipulation may impact American consumers and the U.S. financial system," said Senate Banking Committee Chairman Tim Johnson, D-S.D.

The LIBOR issue raises the question of whether regulators are keeping a close eye on banks, and whether the Fed is effectively fulfilling its role as the nation's primary banking regulator, said Public Citizen's Naylor.

"The world's credit markets depend on LIBOR to such an enormous degree that the scandal undermines confidence in regulators -- they should have seen indicators of this manipulation," he said.

The Commodity Futures Trading Commission, which along with British bank regulators brought the case against Barclays, has required the bank to put measures in place to ensure its transactions are given the most weight in determining LIBOR. The bank must also place firewalls between traders and the employees who make LIBOR submissions.