by Kyle Colona on July 17, 2012
The Libor rate rigging scandal is growing curiouser and curiouser and is quickly becoming a game of blame shifting.
Various aspects of this mess have widely been reported on since Barclays rolled over and ponied up $450 million to settle global financial claims with the UK’s Financial Services Authority, the CFTC and other federal regulators in the US. It has also been reported that former NY Fed head honcho Timothy Geithner was aware of the rate rigging scenario as early as 2008 and that a warning was sent to other central bankers across the global markets.
Now, the New York Times Dealbook is reporting that Senior British officials deny they received any such warnings from the Federal Reserve Bank of New York. In a hearing before a British parliamentary committee today, Mervyn A. King, governor of the Bank of England, said “discussions” with American authorities merely concerned “ways to improve the London interbank offered rate.”
“At no stage did he or anyone else at the New York Fed raise any concerns with the Bank that they had seen any wrongdoing,” said Mr. King. “There was no suggestion of fraudulent behavior.”
Mr. King also claimed that the New York Fed did not share internal memorandums that raised the possibility that international banks were not accurately reporting their Libor submissions. These documents are believed to highlight how US authorities were gleaning information “as early as 2007 about potential problems with the rate-setting process.”
However the memos reveal that US officials had knowledge that “contributing banks have indicated a tendency to underreport actual borrowing costs.” And the intended purpose of this play was to limit speculation about big banks’ liquidity problems.
For those who missed the 2008 tsunami, this type of speculation led traders to short sell former financial power players like Bear Stearns and Lehman Brothers, both of which were swept into the dustbin of history.
British officials argue that the New York Fed’s recommendations were not a warning that Libor was being manipulated. But the bigger question here is how much the NY Fed actually knew back in 2007 as the financial storm clouds were gathering on the horizon.
And as more details emerge, and other banks are swept up in this probe the Libor rate rigging fiasco could prove to be the most damaging and far reaching scandal connected to the financial meltdown.
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Kyle Colona is a New York-based freelance writer and a Feature Writer for CompliancEX and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications. You can find him on linkedin.