I said yesterday that I could actually envision a few criminal prosecutions on Libor rate-rigging in the coming months. We know that plenty of banks are involved – I don’t think Barclays warned their employees about additional revelations at other banks, they simply prepared them for it, as a pretext to assuring that the heat will be off them soon. So the Justice Department will have plenty of banks to choose from – Deutsche Bank, cooperating with EU and Swiss regulators, is just an example – and can round up a couple low-level bankers for the perp walk photo-op.

But this would be a classic deflection strategy. Because the more you learn about Libor, the more you must reserve some of your fury for the regulators:

British regulators will face further scrutiny for their role in a rate-manipulation scandal when top officials at the Financial Services Authority testify on Monday before Parliament.

Lawmakers in London and Washington have been pressing regulators over what they view as a failure to address problems with the process for setting benchmark interest rates. British politicians are expected to ask regulatory officials when they were first notified about potential issues, and why they did not stop the activities.

Documents released by Barclays indicate that the bank informed regulators about problems with the London interbank offered rate, or Libor, as far back as 2007. But the Financial Services Authority opened its investigation in April 2010.

“It wasn’t just the fault of the banks,” said Mark Garnier, a British politician who sits on the parliamentary committee overseeing testimony on Monday. “The Financial Services Authority should have picked up on the irregularities.”

And regulators in the US face the same problem. We have documentary evidence that the New York Fed was informed of rate-rigging in Libor in April 2008, and the only tangible action taken was Tim Geithner assembling a bunch of big bank recommendations and forwarding them over to the Bank of England. This is classic buck-passing, and it did not stop the activities that ripped off numerous municipalities and investors for at least a year longer.

If there’s been an erosion in the confidence of the financial system – and frankly there should be – then that also must extend to the regulatory apparatus, which has shown themselves to be utterly captured and unable to act on even the most obvious of cases. These banks are too big to regulate and too connected to the regulators.