LONDON (AP) — The governor of the Bank of England said Tuesday that U.S. authorities did not show him any evidence of manipulation of a key market rate when they raised concerns in 2008.
Mervyn King told a House of Commons committee that during the 2008 financial crisis, there was widespread concern about what the London interbank offered rate, or LIBOR, was indicating about the state of banks. However, there were no fears being voiced about misreporting.
UK lender Barclays has since been fined $453 million by U.S. and U.K. financial authorities for manipulating LIBOR between 2005 and 2009. Barclays' chief executive Bob Diamond resigned as a result of the scandal and chairman Marcus Agius says he will go once his successor is chosen.
Treasury Select Committee member Michael Fallon pressed King on why Timothy Geithner, then president of the New York Federal Reserve, in 2008 proposed "procedures designed to prevent accidental or deliberate misreporting" and "eliminate incentive to misreport,"
"When you design any self-reporting scheme you have rules to prevent misreporting," King said.
"That isn't the same as saying you've got evidence that there is misreporting, nor did the Fed or anyone else send us any evidence of misreporting."
LIBOR is an average rate set by banks each morning that measures how much they expect to pay each other for loans. The rate is also used in calculating borrowing costs of hundreds of trillions of dollars in loans and investments such as bonds, auto loans and derivatives. The process is supervised by the British Bankers Association.
At the height of the 2008 credit crisis, following the collapse of Lehman Brothers, interbank borrowing dried up as fear and speculation over which lender would be the next to fail gripped the markets lenders.
In sometimes testy exchanges with the committee, King said the first he knew of any alleged wrongdoing during 2008 "was when the reports came out two weeks ago."
Those reports by the U.S. Department of Justice, the Commodity Futures Trading Commission and Britain's Financial Services Authority detailed rate manipulation by Barclays between 2005 and 2009.
"We have been through all our records. There is no evidence of wrongdoing or reporting of wrongdoing to the Bank (of England)," King said.
An analysis published by the NY Fed in May 2008 noted that although banks "may have incentives to misreport in order to manipulate the level of the LIBOR fixing, and thereby influence their funding or derivative positions, this is not the primary driver of recent alleged misquotes."
King also defended his intervention which led to Diamond's resignation on July 3, denying suggestions by committee chairman Andrew Tyrie that the governor exceeded his authority and hadn't consulted properly.
King said he was prompted to act after Agius announced his resignation on July 2.
In a meeting that night with Agius and Michael Rake, the senior independent director, King concluded that "they hadn't really taken on board the loss of confidence of the regulators in the executive management."
"It was an honorable decision of Mr. Agius to resign, (but) he had inadvertently put any prospective new chairman in an impossible position," King said, either of having to fire Diamond immediately or work with Diamond, not knowing what further problems might emerge.
In his testimony to the committee last week, Agius said: "We were told in no uncertain terms that he (Diamond) did not have support of the regulators."
Senior officials at U.K. markets regulator the Financial Services Authority had already voiced their concerns about Barclays board — including their belief that the management was repeatedly pushing at the boundaries of regulation. This led to a meeting with the bank's executives in February 2012 and an unprecedented letter to the chairman to underline those concerns. Adair Turner, the head of the Financial Services Authority, reiterated those concerns to Agius after Barclays was fined.
"It is possible to sail close to the wind once, you can sail close to the wind twice, maybe even three times, but when it gets to four or five times — it becomes a regular pattern of behavior — you do have to ask questions about the navigational skills of the captain on the bridge," King said.
"I think what had happened over many months was that the board of Barclays had been in something of a state of denial about the concerns of regulators," he added.
King said he wasn't acting as a regulator and wasn't urging Barclays to remove Diamond.
However, Tyrie questioned King's role, saying: "This is a conversation about handing someone a revolver and telling him to go off and shoot his chief executive."
"I don't like these firearms analogies, and they are false," King said. "The question was left absolutely with them. ... I did not know what the outcome of that meeting would be."
Diamond resigned as chief executive the next day.
The UK bank has been at the centre of a very public storm since U.S. and British authorities fined it more than $450 million last month for its part in manipulating Libor. The ensuing backlash cost chief executive Bob Diamond and chairman Marcus Agius their jobs. The pair have appeared before a parliamentary committee to testify about what went on at the bank, in a scandal which has drawn in British central bankers and government ministers.
BANK OF AMERICA
Bank of America is among the banks being investigated, a person familiar with the matter told Reuters last year. The bank did not comment in its 2011 annual report. It is one of 11 banks accused of conspiring to manipulate Libor in two lawsuits filed by discount brokerage and money manager Charles Schwab.
The Swiss Competition Commission said in February that Bank of Tokyo-Mitsubishi UFJ was among those it was investigating on suspicion of conspiring to manipulate rates. The Japanese bank did not comment on any probes in its 2011 annual report. This month, the group suspended two London-based traders as a result of a probe into manipulating interbank lending rates, but the bank said that was not to do with their conduct at BTMU. They had previously worked at Dutch lender Rabobank.
Citigroup said its subsidiaries had received requests for information and documents as part of investigations in various jurisdictions. The U.S. bank said it was cooperating. The bank is also subject to a number of private lawsuits filed in the U.S. against banks that served on the Libor panel. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had, along with his boss at Citi, attempted to influence the Tokyo interbank offered rate (Tibor).
Credit Suisse is one of 12 banks being investigated by the Swiss Competition Commission about alleged collusive behaviour among traders to influence the bid ask spread for derivatives tied to Libor and Tibor as well as the rates themselves. Credit Suisse said it was cooperating fully.
The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011. It has had civil actions filed against it in the United States related to the setting of Libor. Germany's market regulator has launched a probe into the bank over suspected manipulation of interbank lending rates, sources have said. Results are expected in mid-July. German magazine Der Spiegel reported, citing no sources, that two Deutsche Bank employees have been suspended after external auditors examined whether staff were involved in manipulating rates.
Lloyds said it was cooperating with investigations. It has also been named in private lawsuits in the U.S. related to the setting of Libor. It said it 2011 annual report that it could not predict the ultimate outcome of investigations or lawsuits. In May, the bank said two derivatives traders had been suspended following an investigation into possible interest rate manipulation.
HSBC has said it received demands from regulators for information in connection with Libor investigations and it was cooperating. It has also been named in lawsuits related to Libor in the United States. HSBC said in its 2011 annual report that it could not predict the outcome of the investigations and lawsuits.
The bank, now a subsidiary of Lloyds, said it was cooperating with investigations. It has also been named in private U.S. lawsuits related to the setting of Libor. HBOS said it in its 2011 annual report it was not possible to predict the scope, outcome or impact of the investigations and lawsuits.
JPMorgan said it was cooperating with regulators and government bodies investigating the setting of Libor, Euribor and Tibor rates, mainly in 2007 and 2008. It has also been named as a defendant in private U.S. lawsuits over Libor.
Rabobank said it was cooperating with investigations into possible manipulation of Libor rates. It has also been named as a defendant in a number of civil lawsuits in the United States. Rabobank said it was confident the claims would be held unfounded and was conducting its defence as such.
Canada's largest bank did not make any comment in its 2011 annual report on its involvement in regulatory probes into possible manipulation of interbank lending rates.
Royal Bank of Scotland said it was cooperating with investigators, who had requested information. RBS said members of its group had been named as defendants in a number of lawsuits in the United States. The bank said it had substantial defences to these claims. Following a newspaper report last month that it faced a 150 million pound fine, RBS said there could not be any certainty as to the timing or amount of any fine or settlement.
The Swiss bank said it had been granted leniency or immunity from potential violations by some authorities, including the U.S. Justice Department and Swiss Competition Commission, in return for its cooperation in the Libor manipulation probe. It did not specify what information it was providing. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had attempted to influence Tibor. It has also been the subject of U.S. lawsuits.
The German bank was among those being investigated, a person familiar with the matter told Reuters in March last year. The bank made no mention of the probes in its 2011 annual report. In July last year it was dropped, at its request, from the panel of banks contributing to daily fixings of Libor for U.S. dollars.
The Japanese bank did not mention the investigations into possible Libor manipulation in its 2011 annual report. In April last year it was one of 12 banks sued by Vienna-based asset manager FTC Capital, accused of conspiring to manipulate Libor.