U.S. Treasury Secretary Timothy F. Geithner said it was the responsibility of U.K. regulators to address possible manipulation of the London interbank offered rate after he told them of his concerns when he was president of the Federal Reserve Bank of New York in 2008.
“We brought those concerns to their attention and we felt, and I still believe this, that it was really going to be on them to take responsibility for fixing this,” Geithner told the House Financial Services Committee today.
Confidence in Libor, a benchmark for financial products worldwide, has been shaken by Barclays Plc’s acknowledgment that it submitted false rates. Robert Diamond, who resigned as London-based Barclays’s chief executive officer after the bank was fined 290 million pounds ($451 million), has told British lawmakers that other banks also made false Libor submissions.
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. Documents released by the New York Fed showed that Geithner sent a memo in June 2008 to Bank of England Governor Mervyn King recommending changes to how Libor is calculated.
“We were aware of the risk that the way this was designed created not just the incentives for banks to underreport but gave them the opportunity to underreport and that was a problem,” Geithner said.
The New York Fed 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.
Citigroup Inc., Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc, Deutsche Bank AG and UBS AG are among firms that are being probed by regulators worldwide into how Libor is set.
Libor, the London interbank offered rate, is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies.
Geithner said July 23 that he was aggressive in expressing concerns about manipulation of the rate in 2008 when he was New York Fed president.