The enforcement response four years ago was so powerful that two days ago, Fed Chairman Ben Bernanke testified before Congress that he could not guarantee the reliability of the Libor interest rates.
To the average person, a powerful enforcement response would have consisted of two parts:
- To publicly acknowledge that Libor was being manipulated and to advise market participants not to use it until such time as the structural flaws underlying Libor had been fixed;
- To address the structural flaws by creating a data warehouse where all of the banks report their actual trades so that these trades can be used as the basis for Libor.
U.S. Treasury Secretary Timothy Geithner defended his response in 2008 to concerns that emerged over the benchmark Libor interest rate, arguing on Wednesday that U.S. regulators pushed early and forcefully for reforms.
Geithner, then head of the New York Fed, sent an email to Bank of England Governor Mervyn King in June 2008, recommending six ways to enhance the credibility of Libor after Barclays had flagged concerns as early as 2007.The email did not say the Fed knew that Barclays was manipulating Libor. A key fact that should never have been omitted.
The six ways to enhance the credibility of Libor were all talking points directly from the banks that were manipulating Libor for their benefit.
U.S. regulators set in motion a "very, very powerful enforcement response," Geithner said ... adding more enforcement on Libor is yet to come.