In the financial crisis, LIBOR rates soared due to payment uncertainty (recall Bear Stearns, Lehman, etc).
Banks lowballed their borrowing rates so as to make their financial conditions look better than they were.
LIBOR stands for London Interbank Offered Rate, the average of interest rates estimated by each of the leading banks in London that it would be charged were it to borrow overnight from other banks.
In June 2012, multiple criminal settlements by Barclays Bank revealed significant fraud and collusion by member banks connected to the rate submissions. The LIBOR rigging admission cost Barclays’ CEO, Bob Diamond, his job. Two traders went to jail.
The Bank of England officer who was in talks with Bon Diamond at the time, Paul Tucker, denied to the parliament in 2012 allegations that he put pressure on Barclays to rig LIBOR to ease funding tensions.
Today, However, the BBC reports Bank of England Implicated in Secret Recording.
A secret recording that implicates the Bank of England in Libor rigging has been uncovered by BBC Panorama.
The 2008 recording adds to evidence the central bank repeatedly pressured commercial banks during the financial crisis to push their Libor rates down.
The recording calls into question evidence given in 2012 to the Treasury select committee by former Barclays boss Bob Diamond and Paul Tucker, the man who went on to become the deputy governor of the Bank of England.
In the recording, a senior Barclays manager, Mark Dearlove, instructs Libor submitter Peter Johnson, to lower his Libor rates.
“The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower.”
Mr. Johnson objects, saying that this would mean breaking the rules for setting Libor, which required him to put in rates based only on the cost of borrowing cash.
His boss Mr. Dearlove replies: “The fact of the matter is we’ve got the Bank of England, all sorts of people involved in the whole thing… I am as reluctant as you are… these guys have just turned around and said just do it.”
Mr. Dearlove declined to answer questions from BBC Panorama.
The phone call between Mr. Dearlove and Mr. Johnson took place on 29 October 2008, the same day that Mr. Tucker, who was at that time an executive director of the Bank of England, phoned Barclays boss Mr. Diamond. Barclays’ Libor rate was discussed.
Mr. Diamond and Mr. Tucker were called to give evidence before the Treasury select committee in 2012. Both said that they had only recently become aware of lowballing.
Peter Johnson, the Barclays Libor submitter, was jailed last summer after pleading guilty to accepting trader requests to manipulate Libor.
However, the jury could not reach a verdict on two other traders then on trial, Ryan Reich and Stelios Contogoulas. The Serious Fraud Office requested a retrial which concluded last week. Both Mr. Reich and Mr. Contogoulas were unanimously acquitted.
Panorama also played Mr. Contogoulas the October 2008 recording. He said he believed that if it had been played during the criminal trials it might have affected the outcomes.
He said: “That’s the thing, you know in these trials that we went through they separated everything, separated trading requests and lowballing. So anything that has to do with this they don’t go in. So you’re asking me do I think that if all this was in would it make a difference? Probably, is the answer.”
So, they jail one pressured trader but not the CEO nor anyone at the BOE. Lovely.
Mike “Mish” Shedlock