US Fed knew of Libor rigging at Barclays… and warned Sir Mervyn King four years ago

US central bankers suspected Barclays was massaging its Libor submissions to appear stronger than it was as early as 2007, documents released last night reveal.
The New York Federal Reserve, the operating arm of the US central bank, said it interviewed Barclays employees in April 2008 who confirmed the bank was ‘under-reporting its rate to avoid the stigma’.
Treasury secretary Tim Geithner, then chairman of the New York Fed, later wrote to Bank of England governor Sir Mervyn King to urge him to bolster the credibility of Libor to prevent ‘deliberate misreporting’.
Rate reform: By the time Tim Geithner's warning was heeded, it was too late to stop Libor-rigging

Rate reform: By the time Tim Geithner’s warning was heeded, it was too late to stop Libor-rigging
The revelations will crank up the pressure on King and his deputy Paul Tucker, who told the Treasury committee he did not know about allegations that Barclays was rigging Libor until this year.
While Geithner’s email to King does not include specific allegations of rate-fixing at Barclays, the Bank of England duo are in for a rough ride in front of the Treasury select committee next Tuesday. MPs are expected to ask why US regulators were aware of suspicious activity in 2007, but the Bank claims not to have known anything until just weeks ago.
 
The email exchanges reveal Geithner’s concerns about Libor’s integrity were passed on, via Tucker, to the British Bankers’ Association, which is responsible for overseeing the rate. The BBA published a list of remedies in November, many of them Geithner’s suggestions, which were later adopted.
By that time, the vast bulk of the Libor-rigging that led to a £290million fine for Barclays – and sparked investigations into more than a dozen other banks – had already occurred.
US Treasury Secretary Timothy Geithner
Mervyn King the governor of the Bank of England
Call for changes: US Treasury Secretary Timothy Geithner, left, warned Bank of England governor Mervyn King in June 2008 about the dangers of ‘deliberate misreporting’ of Libor submissions
The email from Timothy Geithner, then head of the New York Federal Reserve Bank, to Sir Mervyn King in which suggestion to reform Libor were attached

The email from Timothy Geithner, then head of the New York Federal Reserve Bank, to Sir Mervyn King in which suggestion to reform Libor were attached
The Bank says it did not officially endorse the BBA’s proposals because it was more concerned with changing Libor so that it reflected only factual transactions, not banks’ own opinions. It says the onset of the financial crisis forced it to kick the matter into the long grass, leaving the BBA to press on with its revised system.
King and Tucker’s appearance before the Treasury committee next week is supposed to be about the Bank’s financial stability report. But they will be grilled over what they knew about allegations relating to Barclays and why they left the BBA to clean up Libor.
The session will follow Monday’s hearing with former Barclays chief operating officer Jerry del Missier, who passed on the suggestion to traders that they should bring down the Libor rate.
Key players in the drama, including Diamond, del Missier and regulators, are also likely to be called before a special banking committee led by Treasury committee chairman Andrew Tyrie.

‘WE KNOW WE’RE NOT POSTING AN HONEST LIBOR RATE’

Barclays traders admitted manipulating Libor early in 2008, a phone transcript revealed last night.
One told an official at the New York Federal Reserve: ‘We know that we’re not posting an honest Libor’.
But though the Bank of England was also alerted to the US concerns, there was no equivalent UK probe.
The documents were released last night after a request from Republican Congressman Randy Neugebauer for information on conversations between the Fed and Barclays.
A few weeks after the call, the then head of the New York Fed, Timothy Geithner, alerted Bank of England governor Sir Mervyn King to his concerns about Libor.
Here is an edited version of the key section of the transcript of a call on April 11, 2008, between Fabiola Ravazzolo of the New York Fed and an unnamed Barclays trader:
TRADER: Now, um, you know, obviously there has been a lot of speculation about Libors and, you know…
FR: Mm hmm.
TRADER: I’ve read some really interesting articles about them… Um, and uh, you know we, w-we, we strongly feel it’s true to say that Dollar Libors do not reflect where the market is trading which is, you know, the same as a lot of other people have said.
FR: And, and why do you think that there is this, this discrepancy? Is it because banks maybe they are not reporting what they should or is it um…
TRADER: Well, let’s, let’s put it like this and I’m gonna be really frank and honest with you.
FR: No that’s why I am asking you 
TRADER: You know we went through a period where we were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates. And the next thing we knew, there was an article in the FT, charting our Libor contributions and comparing it with other banks and inferring we had a problem raising cash in the interbank market.
FR: Yeah.
TRADER: And our share price went down.
FR: Yes.
TRADER: So it’s never supposed to be the prerogative of a money market dealer to affect their company share value.
FR: Okay.
TRADER: And so we just fit in with the rest of the crowd, if you like.
FR: Okay.
TRADER: So, we know that we’re not posting um, an honest Libor.
FR: Okay.
TRADER: And yet and yet we are doing it, because, um, if we didn’t do it… it draws, um, unwanted attention on ourselves… not a useful thing for us as an organisation.

Parliamentary inquiry branded a ‘whitewash’

The Parliamentary inquiry into the rate-fixing scandal was branded a ‘whitewash’ before it even began yesterday.
Several MPs on the Treasury select committee, which had already started investigating the affair, were left off the new committee despite being hailed as the most combative and effective questioners.
Labour’s John Mann said he and Tory Andrea Leadsom had been excluded because they were ‘too outspoken’. Mrs Leadsom, a former Barclays employee, won plaudits for her forensic questioning of former boss Bob Diamond last week.
But she caused controversy by saying politicians had been ‘pretty useless’ in uncovering the truth behind the Libor scandal.
The MP also caused uproar at the Treasury by backing Labour calls for George Osborne to apologise to Ed Balls for saying he had questions to answer over his role.
Sources said membership of the Parliamentary probe had been largely the preserve of its chairman, Tory MP Andrew Tyrie.
But the leaderships of the two main parties agreed the line-up. Unusually, the panel will be given the resources to use a senior QC to advise on and even question witnesses.
The MPs who have been selected are Tory Mark Garnier, Labour MPs Pat McFadden and Andy Love and Lib Dem John Thurso – all members of the Treasury committee.
The exclusion of Tories David Ruffley and Jesse Norman, two other members of the committee, also caused surprise. 
Mr Mann, who offered to tattoo Barclays’ founding principles of ‘honesty, integrity and plain dealing’ on Mr Diamond’s knuckles to ensure he never forgot them, said: ‘Both Andrea and I were available for the inquiry and because we are too outspoken we have been blocked. 
‘This exposes the inquiry as a total whitewash, with Andrew Tyrie reaching his conclusions in advance of the meetings.’

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