Barclays Told New York Fed It Low-Balled Libor, Transcript Shows

Barclays Told New York Fed It Lowballed Libor
The headquarters of Barclays Plc are seen in the Canary Wharf business district of London. Photographer: Simon Dawson/Bloomberg

Barclays Plc told U.S. regulators as early as April 2008 that it was making artificially low London interbank offered rate submissions to avoid the perception that the British bank was struggling to fund itself.

“We know that we’re not posting, um, an honest Libor,” a Barclays employee said to an analyst at the Federal Reserve Bank of New York, which today released a transcript of the phone call from April 2008. “We just fit in with the rest of the crowd, if you like.” The employee’s name was redacted by Barclays when it submitted the transcript, according to the New York Fed, which helps regulate Wall Street securities firms.

The employee said Barclays had given accurate Libor submissions before the publication of an article in Britain’s Financial Times, which charted “our Libor contributions and comparing it with other banks and inferring that this meant that we had a problem raising cash in the interbank market.” Barclays spokeswoman Phillippa-Jane Vermoter declined to comment.

Regulators are under pressure from lawmakers to explain to what extent they were aware banks were lowballing their submissions to Libor during the credit crisis. Barclays agreed to pay a record 290 million-pound ($452 million) fine last month for trying to manipulate the benchmark for more than $500 trillion of securities.

Tucker Testimony

Barclays has said former Chief Financial Officer Jerry Del Missier believed U.K. regulators were asking the London-based bank to deliberately lowball Libor to help stem the financial crisis. Bank of England Deputy Governor Paul Tucker denied this in testimony to the British parliament this week.

Tucker was criticized by U.K. lawmakers for failing to clamp down on the banks when the low Libor submissions were being made. In evidence he gave to the House of Commons Treasury Select Committee on July 9, Tucker said he had thought the market was “dysfunctional” though not “dishonest” at the time, and had been unaware that banks may have been lowballing the benchmark before 2008.

Barclays said in its settlement with regulators last month that its traders rigged Libor as early as 2005.

Timothy F. Geithner, who ran the New York Fed from 2003 to 2008 and is now U.S. Treasury Secretary, sent Bank of England Governor Mervyn King recommendations in June 2008 to revamp Libor. King and Tucker, at the time markets director of the U.K. central bank, passed the comments to the BBA, according to correspondence released by the Bank of England today.

‘Obligation’ Letter

Geithner wanted procedures to prevent “misreporting,” and the BBA, which was reviewing Libor at the time, said it would consider the recommendations.

The U.K.’s second-largest lender by assets is among at least a dozen banks being probed around the world for alleged manipulation of Libor. Political outrage in Britain in the wake of the fine prompted Barclays’s top three executives to quit, while speculation the probe may lead to billions of dollars in lawsuits sent the stock plunging.

According to the transcript released today, the British Bankers’ Association, the lobby group that oversees Libor, had written to submitters to remind them of their “obligation,” the bank worker said.

“You know, Libor’s being set too low anyway,” a Barclays employee told another analyst at the New York Fed in December 2007, when asked about Libor submissions. Nothing more was said about Libor on that call, the transcript showed.

In October 2008, a Barclays banker told another Fed worker other lenders were probably lowballing their submissions, referring to German banks.

‘I mean, West, Deutsche, Landesbank, I don’t know where he gets his Libor indications from,” the transcript showed the Barclays banker as saying. “I can’t imagine anyone would want to lend him any money.”

The New York Fed today released documents in response to a request from Representative Randy Neugebauer, a Texas Republican who serves on the House Financial Services Committee. Neugebauer sent a letter this week to New York Fed President William C. Dudley asking for transcripts of communications between the regulator and Barclays relating to setting Libor rates from August 2007 to November 2009.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE