Bank of England Deputy Governor Paul Tucker said no government minister or official pressured him to instruct Barclays Plc (BARC) or any other U.K. commercial bank to lowball its Libor submissions during the financial crisis.
“Absolutely not,” Tucker told lawmakers in London today, when asked if anybody from the civil service or the then Labour government leaned on him to ask banks to lower their Libor submissions. He also said some of a memo written by former Barclays Chief Executive Officer Robert Diamond after an October 2008 phone call between the two gave “the wrong impression.”
Tucker’s two-hour testimony followed the record 290 million-pound ($449 million) fine imposed on Barclays last month for manipulation of the London interbank offered rate. The scandal, which Tucker described as a “cesspit,” has jeopardized his position as the front-runner to replace Mervyn King as governor of the Bank of England.
“I can’t be confident about anything after learning about this, this cesspit,” he said. “Self-certification is plainly open to abuse” and the government “should look at every single index that isn’t based on real transactions.”
The deputy governor added he was not aware of allegations other banks were submitting low Libor quotes before Barclays.
“We were not aware of allegations of dishonesty,” he said, adding that he thought “these money markets are not working, they are dysfunctional.”
Diamond resigned on July 3 and testified to the Treasury Committee a day later. Chairman Marcus Agius, who plans to leave once a successor for Diamond is found, will attend the panel tomorrow at 10 a.m.
Tucker was dragged into the affair by Diamond’s memo of their Oct. 29, 2008 call, which suggested he might have hinted that Barclays could lowball its Libor submissions. Tucker, who was markets director at the time, said he spoke to Diamond as there were worries Barclays was “next in line” after Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY) had accepted government bailouts in 2008.
According to the memo, Tucker had received calls from “senior” government figures on Barclays’s Libor pricing. Diamond said Tucker stated “that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
Tucker said that sentence in the note “gives the wrong impression.”
“It should have said something along the lines of: ‘Are you ensuring that you, the senior management of Barclays, are following the day-to-day operations of your money market desk, your treasury? Are you ensuring that they don’t march you over the cliff inadvertently by giving signals that you need to pay up for funds?”
Tucker told the committee that the central bank didn’t keep a record of the call. ‘Sitting here, I greatly wish there were a note of it,’’ he said.
Odds at bookmaker Paddy Power Plc (PWL) show Tucker is no longer the favorite to take over when King retires in 2013. His odds have worsened to 9/4 from 6/4, while Gus O’Donnell, the former head of the U.K. civil service, moved to 7/4 from 2/1. O’Donnell was a 14/1 shot at the start of the year.
Diamond said last week that he didn’t interpret the conversation with Tucker as a request to change Barclays’s Libor submissions. Tucker said he was passing on concerns that had been expressed by government officials. He said he had most contact during the crisis period with civil servants Jeremy Heywood, Tom Scholar, Jon Cunliffe and, to a lesser extent, Nicholas Macpherson, the top civil servant at the Treasury.
Tucker’s evidence puts pressure on Chancellor of the Exchequer George Osborne, who last week accused his opposite number in the Labour Party, Ed Balls, of being involved in the scandal as a Cabinet minister in the previous government. The allegation sparked angry exchanges in the House of Commons.
“It is now absolutely clear that the chancellor’s allegations last week were totally false and completely without foundation,” Balls said today. “George Osborne should now publicly withdraw these false allegations and apologize.”
To contact the editor responsible for this story: Craig Stirling at email@example.com