Representative Randy Neugebauer is seeking more information from the Federal Reserve Bank of New York on its communications with banks that are involved in setting the London interbank offered rate.
Neugebauer in a letter released today asked for all communications from August 2007 until July of this year between employees of the New York Fed and staff at the 16 banks pertaining to Libor rate submissions. Neugebauer is a Republican from Texas.
“There are still many outstanding questions that merit further investigation,” Neugebauer, who serves on the House Financial Services Committee, said in the letter addressed to William C. Dudley, president of the regional Fed bank.
The Fed has come under increased scrutiny from lawmakers critical of its record as a bank supervisor after the New York Fed released documents on July 13 showing it was aware that Barclays Plc underreported Libor rates in 2008. Barclays was fined a record 290 million pounds ($450 million) last month for rigging interest rates and the scandal cost Chief Executive Officer Robert Diamond his job. At least a dozen banks are being investigated.
Chairman Ben S. Bernanke defended the Fed’s response to Congress last week, saying the U.S. central bank cooperated with other regulators and suggested a fix. The documents released by the New York Fed showed that Timothy F. Geithner, then the president of the regional Fed bank, sent a memo in June 2008 to Bank of England Governor Mervyn King recommending changes to how Libor was calculated.
The New York Fed also said in a statement on its website that it was aware “some banks” were potentially underreporting submissions for Libor as early as 2007. A Barclays employee told a New York Fed staff member in April 2008 that the London-based bank was understating its rate to avoid a “stigma,” the Fed bank said.
“The documents you provided to the subcommittee revealed that the New York Fed was made aware that certain financial institutions were ‘not posting honest Libor’ rates,” Neugebauer, who also asked for the first set of communications, said in today’s letter.
“What is less clear in your response is how the New York Fed dealt with admissions of market manipulation,” as “any admission of market manipulation -- regardless of the degree -- should be swiftly and vigorously investigated,” Neugebauer said.
Andrea Priest, a spokeswoman for the New York Fed, declined to comment.
“The investigations took place, but they were taken up quite quickly by not the Fed, which is a safety and soundness regulator, but by the authorities that had the most direct responsibility for those issues,” Bernanke said July 17 in testimony to the Senate Banking Committee in Washington. The New York Fed “took the lead” and “informed all the relevant authorities” in the U.K and U.S.
The Fed didn’t have information to suggest that banks were manipulating rates “for profit,” only that some were “possibly submitting low rates to avoid appearing weak” during the financial crisis, Bernanke said. Still, misreporting of Libor is “very troubling,” he said.
Geithner, now U.S. Treasury secretary, advised King in the memo to “establish and publish best practices for calculating and reporting rates, including procedures designed to prevent accidental or deliberate misreporting.”
Geithner is scheduled to testify on July 25 before the House Financial Services Committee.