Speaking of bank fraud, the British Parliament continued their investigation into Barclays Bank and the Libor scandal this week, and it’s just getting worse and worse for everyone involved. Yesterday, Jerry del Missier, the former COO of Barclays, testified that he was instructed by CEO Bob Diamond to manipulate the Libor down in 2008, to mask the ill financial health of the bank. Similarly, the Financial Services Authority focused on Diamond, accusing him of “selective testimony” and saying that a “culture of gaming” at Barclays emanated from the very top.
Mr Bailey told the committee there had been strong concerns about the investment bank operations at Barclays and its attitude to risk.
“There was a culture of gaming. It had to change,” said Mr Bailey, adding: “We drew the conclusion that there was a problem with this institution.”
He said: “You could not escape the conclusion that the culture of this institution was coming from the top.” And when asked if “the top” meant Mr Diamond, Mr Bailey replied “yes”.
This is actually the opposite of what Diamond said in his testimony, that regulators were pleased with the “tone at the top” of Barclays.
Much of the hearing with del Missier focused on that phone call between Diamond and Paul Tucker, the deputy governor of the Bank of England. Del Missier said that, as a result of being briefed on that call, he rigged the Libor downward, under instructions from Diamond. For his part, Diamond said this was all a misunderstanding, and he did not direct del Missier to rig Libor.
Mervyn King, the governor of the Bank of England, testified today, and in addition to denying that the central bank asked Barclays to reduce their submissions on Libor, he denied that the NY Fed warned them about manipulations of the rate.
Senior British officials said they did not receive warnings from the Federal Reserve Bank of New York about the rate-rigging scandal during the financial crisis of 2008.
Speaking to a British parliamentary committee on Tuesday, Mervyn A. King, governor of the Bank of England, the country’s central bank, said discussions with American authorities had instead focused on ways to improve the London interbank offered rate, or Libor.
The Bank of England governor said the correspondence with Mr. Geithner, who is now the United States Treasury secretary, did not represent a warning about potential illegal activity related to Libor.
“At no stage did he or anyone else at the New York Fed raise any concerns with the Bank that they had seen any wrongdoing,” Mr. King told the parliamentary committee on Tuesday. “There was no suggestion of fraudulent behavior.”
This seems pretty accurate. Geithner’s communications with the BoE, where he just regurgitated some options for improving Libor forwarded to him by the banking industry, did not explicitly assert that the NY Fed had knowledge of fixing, even though we now know that a Barclays employee admitted this to them back in April 2008.
I don’t know if BoE officials are misrepresenting the nature of their conversations with the NY Fed, but the public record does show an unwillingness to explicitly call out fraud on the rate-fixing of Libor. This looks extremely bad for the NY Fed and Timothy Geithner. But the Bank of England doesn’t come off scot-free, either. They didn’t take up any of the recommendations designed to “eliminate incentive to misreport.” They have given confusing responses to the allegation that they encouraged Barclays to set the Libor downward. The responses they have given show an unusual familiarity between a bank and their government minder:
After it was announced that Mr. Tucker would become the deputy governor of the Bank of England in December, 2008, Mr. Diamond emailed to congratulate him: “Well done, man. I am really, really proud of you,” the former Barlcays chief wrote.
Mr. Tucker was equally friendly in his response. “Thanks so much Bob. You’ve been an absolute brick through this,” he said in an email.
And Mervyn King’s claim that he only learned about Libor fixing two weeks ago, and that he’s not a regulator so they had no role, was criticized:
Why did the New York Fed take such an active interest in the potential rigging of Libor, but the Bank of England did not, asks Pat McFaddon
King explains that the two central banks are different: “They’re a regulator, we’re not …”, adding that the Bank had to pass the concerns on to the BBA.
So you’re just a postbox, asks McFaddon?
Certainly not, replies an irked governor. The Bank played an important role in the BBA’s inquiry, he adds.
If that’s not having it both ways, I don’t know what is.