Thursday, July 5, 2012

Bank of England in spotlight over handling of Libor

As reported by the Telegraph, the Bank of England is in the spotlight over its 'nod and wink' to Libor rigging.

Andrew Tyrie, chairman of the Treasury Select Committee, said the note of a conversation in October 2008 between the Bank’s Deputy Governor Paul Tucker and Barclays’ chief executive Bob Diamond “reads that way to anyone that looks at it”....

The Bank has insisted that it is “nonsense” to suggest it was trying to urge Barclays to lower Libor submissions....
The renewed pressure on the Bank came as Britain’s financial regulators, including the Bank and the Financial Services Authority, were accused of deep failures while lenders were attempting to fix Libor during 2007 and 2008. 
“Regulators were asleep at the wheel,” Mr Tyrie said. The settlement documents show that Barclays contacted the FSA 13 times between August 2007 and October 2008 over concerns about Libor, and the Bank was contacted twice. 
Mr Diamond said it was “very difficult for me to say” that regulators had failed, but he added: “There was an issue out there and it should have been dealt with. You can’t say that no one knew there was an issue around Libor [between 2007 and 2008].” 
Mr Diamond said it was clear that other banks appeared to be putting in Libor submissions that were lower than the market rate, and that Barclays staff in “group treasury and compliance were making approaches to regulators”. 
Including the British Bankers’ Association, the industry group that set Libor on a daily basis, and the US Federal Reserve, Barclays made a total of 32 approaches to regulators in the 14 months from August 2007. 
Newspapers also carried articles about Libor rigging in 2007 and 2008, and one Barclays Capital analyst was even quoted saying that Libor was being manipulated lower. 
However, regulators did not start to investigate the matter until early 2009, and then it was led out of the US by the Commodity Futures Trading Commission.
Regular readers know that the whole issue of Libor rigging could have been avoided if regulators had insisted on basing the interest rate off of actual transactions, where all transactions were disclosed to market participants, in the first place. 

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