July 13 (Bloomberg) -- Timothy F. Geithner sent Bank of England Governor Mervyn King recommendations in 2008 to revamp the London interbank offered rate, now at the center of a scandal over allegations the benchmark was manipulated.
King and Paul Tucker, at the time markets director of the U.K. central bank, passed the comments to the British Bankers’ Association, according to correspondence released by the Bank of England today. Geithner wanted procedures to prevent “misreporting,” and the BBA, which was reviewing Libor at the time, said it would take the recommendations on board.
The Bank of England has become embroiled in the rate-rigging scandal that led to Barclays Plc being fined a record 290 million pounds ($448 million) and cost Chief Executive Officer Robert Diamond his job. Members of Congress are seeking information from U.S. regulators about issue, while lawmakers in the U.K. are scheduled to hold hearings next week as they continue their own review.
At least a dozen banks are being investigated for manipulating Libor, the global benchmark for $360 trillion of securities. Tucker testified at the U.K. parliament’s Treasury Committee on July 9, while Andrew Bailey, head of the Prudential Business Unit at the Financial Services Authority, and FSA Chairman Adair Turner will attend the panel on July 16.
Geithner, the U.S. Treasury secretary who was president of the Federal Reserve Bank of New York at the time, sent the memo to King on June 1, 2008, after the two discussed Libor at a meeting of central bankers in Basel the previous month. The recommendations included one to “establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting.”
King forwarded Geithner’s message to Tucker, who shared them with Angela Knight. She was then the chief executive officer of the BBA, the lobby group which coordinates Libor.
“The bank was aware of the forthcoming BBA consultation and, despite not having any regulatory responsibilities in this area, was concerned that it be as comprehensive as possible,” the Bank of England said in a statement. “Both the bank and the Federal Reserve were assured by the BBA that it would take on board the recommendations, either through actions or through questions on which it would consult.”
The New York Fed today is set to release 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.
“In the context of our market monitoring following the onset of the financial crisis in late 2007, involving thousands of calls and e-mails with market participants over a period of many months, we received occasional anecdotal reports from Barclays of problems with Libor,” New York Fed spokeswoman Andrea Priest said this week in a statement.
Priest said that in early 2008, after the failure of Bear Stearns Cos. in the financial crisis, the district bank “made further inquiry of Barclays as to how Libor submissions were being conducted” and it later “shared our analysis and suggestions for reform of Libor with the relevant authorities in the U.K.”
The Senate Banking Committee plans to question Geithner and Fed Chairman Ben S. Bernanke on the scandal at regularly scheduled hearings this month. Committee Chairman Tim Johnson, a South Dakota Democrat, said July 10 he is “concerned by the growing allegations of potential widespread manipulation of Libor and similar interbank rates.”
Twelve Democratic senators, including Jack Reed of Rhode Island and Carl Levin of Michigan, yesterday sent a letter to Geithner and Attorney General Eric Holder asking for an examination of “allegations that U.S. and foreign bank regulators may have been aware of this wrongdoing for years.”
“This scandal calls into further question the integrity of many Wall Street banks and whether our prosecutors and regulators are up to the task of regulating them,” they said.
Among Geithner’s recommendations was to add a second Libor fixing for the U.S. market and to broaden the number of banks taking part in the U.S. beyond JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. That would “produce a fixing that is more representative of the London interbank market and less susceptible to the specific funding issues of institutions” that do not have a broad dollar funding base.
Libor is calculated from a daily survey carried out for the BBA in London, in which the world’s biggest lenders are asked the rate they’re charged to borrow over a variety of short-term maturities in currencies including dollars, euros and yen. Banks are accused of low-balling submissions for the benchmark during the financial crisis.
The Washington Post reported earlier on Geithner pressing British regulators to change the Libor calculation.
-- With assistance from Svenja O’Donnell in London. Editors: Fergal O’Brien, Craig Stirling
To contact the editor responsible for this story: Chris Wellisz at firstname.lastname@example.org