The Bank of England has been accused of refusing to lead the reform of the discredited Libor system after failing to act on warnings more than four years ago over interest rates rigging by the banks.
Emails and notes of meetings between the Bank, other regulators and banking industry representatives, which were disclosed today, show there were clear indications that banks’ rate setters could have been deliberately falsifying Libor submissions at the height of the financial crisis.
The emails reveal senior figures at the Bank, including deputy Governor Paul Tucker, were given a number of separate alerts in 2008 - by their own officials, the British Bankers Association (BBA) and US regulators - about the potential for manipulation.
Mr Tucker was told in May that year that banks had been warned they had to submit “honest” Libor rates. The caution resulted in an immediate material change to Libor submissions.
In another email, Mr Tucker was warned banks could be submitting false rates for “commercial incentives”.
But the documents also disclose how the Bank, despite the raft of evidence of potential wrongdoing, resisted pressure from the BBA to take an official role in the reform of how Libor rates were calculated and submitted.
The Bank even refused to have its name associated with any changes. Last night the BBA confirmed it had asked the Bank to step in.“The BBA’s desire [was] that the Bank of England should play a formal role in the process going forward,” it said.
“The Bank declined.”The BBA’s repeated attempts to get the Bank and regulators to take an official role in the market were snubbed because the setting of the inter-bank lending rates was seen as a “private” index and not something that fell under the Bank’s remit.
The new evidence comes three weeks after Barclays paid £290m in fines after admitting it had manipulated submissions of inter-bank lending rates.
Bank of England Governor Sir Mervyn King has since claimed he was unaware of the manipulation of Libor until the fines emerged.
However, Andrew Tyrie, the MP leading an inquiry into the banks’ behaviour, said the emails justified deeper investigation into the failings of the Bank, the regulators and the BBA.
“It’s clear from what’s come out that the FSA final notice report [into Barclays’ Libor fixing] is not the final word on all that’s happened,” he said.
“It’s now imperative that the review conducted by the relatively newly appointed Martin Wheatley successfully gets to the bottom of it.” The email correspondence released today centred on a 2008 review of Libor by the BBA.
Sir Mervyn rejected their initial suggestions on shaking-up the governance of Libor as “wholly inadequate”, leading to a second rewriting of rules by the BBA, with which he said he was “broadly content”.
But, at the same time, his deputy Mr Tucker was accused of trying to water-down the proposals which he said should involve “evolution not revolution”.
“Your proposal that we reduce what is said… on governance, I am afraid, is not possible,” head of the BBA Angela Knight wrote to Mr Tucker. “In fact, to get a way forward is going to require strong governance for Libor and the pressure is on to do more not less.”
John Mann, MP, a member of the Treasury Select Committee which has been investigating Libor, said: “This all looks somewhat chaotic. The Bank of England and the BBA have now been dragged right into the middle of all this.”
The revelations came as reports suggested a number of banks had been holding informal talks about reaching a joint settlement with regulators over their part in manipulating Libor. The banks are understood to be trying to avoid the backlash suffered by Barclays.
telegraph.co.uk
Emails and notes of meetings between the Bank, other regulators and banking industry representatives, which were disclosed today, show there were clear indications that banks’ rate setters could have been deliberately falsifying Libor submissions at the height of the financial crisis.
The emails reveal senior figures at the Bank, including deputy Governor Paul Tucker, were given a number of separate alerts in 2008 - by their own officials, the British Bankers Association (BBA) and US regulators - about the potential for manipulation.
Mr Tucker was told in May that year that banks had been warned they had to submit “honest” Libor rates. The caution resulted in an immediate material change to Libor submissions.
In another email, Mr Tucker was warned banks could be submitting false rates for “commercial incentives”.
But the documents also disclose how the Bank, despite the raft of evidence of potential wrongdoing, resisted pressure from the BBA to take an official role in the reform of how Libor rates were calculated and submitted.
The Bank even refused to have its name associated with any changes. Last night the BBA confirmed it had asked the Bank to step in.“The BBA’s desire [was] that the Bank of England should play a formal role in the process going forward,” it said.
“The Bank declined.”The BBA’s repeated attempts to get the Bank and regulators to take an official role in the market were snubbed because the setting of the inter-bank lending rates was seen as a “private” index and not something that fell under the Bank’s remit.
The new evidence comes three weeks after Barclays paid £290m in fines after admitting it had manipulated submissions of inter-bank lending rates.
Bank of England Governor Sir Mervyn King has since claimed he was unaware of the manipulation of Libor until the fines emerged.
However, Andrew Tyrie, the MP leading an inquiry into the banks’ behaviour, said the emails justified deeper investigation into the failings of the Bank, the regulators and the BBA.
“It’s clear from what’s come out that the FSA final notice report [into Barclays’ Libor fixing] is not the final word on all that’s happened,” he said.
“It’s now imperative that the review conducted by the relatively newly appointed Martin Wheatley successfully gets to the bottom of it.” The email correspondence released today centred on a 2008 review of Libor by the BBA.
Sir Mervyn rejected their initial suggestions on shaking-up the governance of Libor as “wholly inadequate”, leading to a second rewriting of rules by the BBA, with which he said he was “broadly content”.
But, at the same time, his deputy Mr Tucker was accused of trying to water-down the proposals which he said should involve “evolution not revolution”.
“Your proposal that we reduce what is said… on governance, I am afraid, is not possible,” head of the BBA Angela Knight wrote to Mr Tucker. “In fact, to get a way forward is going to require strong governance for Libor and the pressure is on to do more not less.”
John Mann, MP, a member of the Treasury Select Committee which has been investigating Libor, said: “This all looks somewhat chaotic. The Bank of England and the BBA have now been dragged right into the middle of all this.”
The revelations came as reports suggested a number of banks had been holding informal talks about reaching a joint settlement with regulators over their part in manipulating Libor. The banks are understood to be trying to avoid the backlash suffered by Barclays.
telegraph.co.uk
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