The Bank of England released emails on Friday detailing conversations about the setting of key interest rates in 2008 with Timothy F Geithner when he ran the Federal Reserve Bank of New York.
The documents show that senior central bank officials in Britain had raised questions over how the London interbank offered rate, or Libor, is set at the height of the financial crisis.
While the emails indicate that officials raised questions about the rate-setting process, it’s unclear what actions they took to address the issues. Despite the central bank’s concerns, Barclays continued the illegal activity.
On Friday, the British central bank released the emails from Mervyn A King, the governor of the Bank of England, and his deputy, Paul Tucker from early June, 2008. The two men were responding to questions from Geithner, who queried the integrity of the benchmark rate that underpins trillions of dollars of financial products, including mortgages and loans.
Geithner, the current US Treasury secretary, suggested British authorities should “strengthen governance and establish a credible reporting procedure” and “eliminate incentive to misreport,” according to documents provided to The New York Times.
In response, the Bank of England documents show that King passed on the recommendations to the British Bankers’ Association, the trade body that oversees the Libor rate. “The recommendations proposed by the New York Fed seem sensible to us,” King said in one of the emails.
Tucker, who was grilled by British politicians last week about his role in the Libor scandal, also arranged to talk to William C Dudley, the current president of the Federal Reserve Bank of New York, who was the executive vice-president of the central bank’s markets group at the time of the discussion.
Tucker, a front runner to become the next governor of the Bank of England, had a phone call with Robert E Diamond, the former chief executive of Barclays, during which they discussed the bank’s position in the financial markets.
The conversation was later interpreted by one of Diamond’s top executives, Jerry del Missier, that Barclays should lower its Libor submissions. Regulators say del Missier, who has resigned because of the trading scandal, misinterpreted the discussion.
In a separate note released by the Bank of England on Friday, Angela Knight, the chief executive of the British Bankers’ Association, said the suggestions from US authorities were being included in a review of Libor.
“Changes are being made to incorporate the views of the Fed,” Knight, who is stepping down from her position at the end of the summer, said in the email. “There is no show stopper as far as we can see.”
The trade body published its initial findings days after receiving Geithner’s recommendations, though did not finalise the report until the end of 2008. The British Bankers’ Association is now conducting a further review into how Libor is set, though a separate British government inquiry also is being established to improvie the governance of the rate after the recent scandal.
© 2012 The New York Times News Service
