Westpac Banking Corp (ASX: WBC) has seen its share price fall around 0.8% to $28.89 in mid-afternoon trading, despite its three peers all in the green, and the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rising 0.7%.

Normally, the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac trade in similar directions, if not mimic each other, unless one of the banks has some major news.

And you’d be correct if you guess that there was major news that negatively affected Westpac today.

The bank becomes the second target of the financial regulator the Australian Securities and Investments Commission (ASIC) after ANZ for alleged manipulation of the bank bill swap rate (BBSW).

The BBSW is the primary interest rate benchmark used in Australian financial markets, and Westpac is alleged to have manipulated the rate in its favour 16 times between 6 April 2010 and 6 June 2012. ASIC alleges that Westpac was seeking to maximise its profit or minimise its loss, to the detriment of those holding opposite positions to Westpac’s.

In one instance, Westpac traders are alleged to have bought $1.8 billion of 30-day bank bills to force the BBSW rate down to 4.23% (lower than it was expected to settle) and making a reported $12 million profit. ASIC is using actual recorded phone conversations (PDF) by Westpac staff in which they appear to specifically refer to trading and the rate set.

Westpac says it rejects ASIC’s allegations and will defend the action against it ‘vigorously’. A number of UK banks have been charged with manipulating the LIBOR rate in the past few years, and UBS, BNP Paribas and the Royal Bank of Scotland have already entered into enforceable undertakings with ASIC.

The second reason for Westpac’s share price fall is that investors are concerned about Westpac’s bad debts. ANZ has already raised its provisions for bad debts, but none of the other banks have as yet. And when we have companies like Arrium Ltd (ASX: ARI) that are on the brink of administration owing more than $2 billion to its syndicate of banks, you could see why they might be worried.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.