By Bob Duncan
The deputy governor of the Bank of England (BoE), under questioning by MPs at the Treasury select committee, has said he did not give Barclays instructions to lower its Libor submissions in 2008.
Paul Tucker has rejected the idea that a conversation he had with ex-Barclays chief executive Bob Diamond could have been taken as an instruction to lower its Libor rates.
Mr Tucker had requested to appear before MPs after a row raged over the scandal of rate rigging by Barclays traders and claims that Labour Ministers were involved in manipulation.
Last week, the Bank of England was dragged into the Libor scandal when Barclays released a memo claiming Tucker had told Mr Diamond in 2008 that a number of “senior Whitehall officials” had expressed concerns over the Libor numbers being reported by Barclays.
The memo was sent by Diamond to John Varley, who was chief executive at the time, and Barclays chief operating officer Jerry del Missier, who resigned last week in the wake of the £290m fine handed down to Barclays for rigging the Libor and Euribor rates.
Giving evidence to the Treasury select committee this afternoon, Mr Tucker was asked by TSC chair Andrew Tyrie whether he would “categorically refute” the suggestion the conversation could have implied he was inviting Barclays to lower its Libor submissions.
He said that in order to reflect what he said to Diamond, his memo should have said, “something along the lines of: are you ensuring that you as senior management of Barclays are following the day to day operations of your money market desk and your treasury? Are you ensuring that they do not march you over a cliff inadvertently by giving signals that you need to pay up for funds?”
Diamond’s memo said: “Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
Paul Tucker said no Labour government minister had asked him to “lean on” Barclays over its inter-bank lending rates. But he also told MPs that the BoE and the government feared that Barclays may need a bailout.
Mr Tucker said he wished he had taken a proper note of the conversation but that he had not because of the pressure at the time due to the unfolding financial crisis. “Sitting here, I greatly wish I had taken a note of it,” he said.
Bob Diamond told MPs last week that he did not take the conversation to be an instruction and that he was unaware that when he sent a memo detailing the alleged communication with the BoE to other senior staff that it was taken by them as an instruction.
Barclays managers claimed last week that their understanding was that the bank of England had given a nod to the manipulation of the rate to bring it down. In an interview last week former Chancellor Alistair Darling admitted that the last Labour government had tried to bring the rate down using, said the labour MP, ‘policy changes’.
Last week Bob Diamond said he took the “senior Whitehall officials” comment from Paul Tucker to mean Labour ministers, but did not give any names.
Emails released by the Bank of England yesterday show Tucker and Jeremy Heywood, then chief of staff at Downing Street, discussed Libor on a number of occasions in October 2008. Tucker told MPs he also spoke to Tom Scholar and Nick McPherson at the Treasury and John Cunliffe at the Cabinet Office.
Labour MP John Mann, who requested the emails between Tucker, Heywood and Diamond under a freedom of information request, chastised Tucker for not releasing them in time for Diamond’s hearing. He said: “It is self-evidently obvious these would been useful to us in questioning Mr Diamond.”
The Bank emails do not suggest he put pressure on Diamond to lower Barclays submissions. Diamond told the committee last week he thought Tucker’s alleged comments indicated concern that Barclays may be having trouble raising funding and could need state assistance.
While he said the BoE did not think Barclays was “doomed” in 2008, Mr Tucker said there was “anxiety” about the bank’s funding position. He said there was concern that after RBS, HBOS and Lloyds had to be bailed out by the government in the middle of October 2008, Barclays could be “next in line”.
At the time, Barclays’ submissions of its borrowing rates were higher than those of other banks. Mr Tucker claims that he was warning Mr Diamond that Barclays risked spooking investors to such an extent that they might find the market became closed to it.
Mr Tucker said he was not aware of any Libor manipulation at the time, but now realised the Libor market was a “cesspit”. He denied the Bank of England was aware of Libor manipulation, or any allegations of dishonesty, despite the fact that he personally chaired a meeting that discussed the low-balling of Libor in 2007.
The BoE deputy claimed that he thought they were talking about banks misunderstanding one another, not “cheating”.
Mr Tucker said he can remember turning to the British Banking Association (BBA) – the body with responsibility for compiling the Libor – and asking them to address claims of low-balling of Libor, but that he didn’t read it as cheating.
He insisted: “I understood this as .. this market isn’t working. Banks have concerns about where they are putting their Libor submissions. Nobody presented this as dishonest.”
When it was suggested to him that this rather went against his assertion that he was not aware of low-balling of Libor, Tucker replied: “I heard this as … they don’t know what each other are doing. They were relying on bilateral private transactions. I didn’t read this as cheating. “
Responding to an MP who said that this was clearly low-balling, Tucker said: “It may well be with hindsight. It is not how we understood it at the time.”
Mr Tucker, who had last week requested a hearing with the Treasury Select Committee “as soon as possible”, was asked if any government official or minister in 2008 had asked him “to lean on” Barclays or any other bank to lower their Libor submissions.
Specifically, he was asked about Shriti Vadera, an adviser to then-Prime Minister Gordon Brown, and shadow chancellor Ed Balls, who was then a Labour minister.
His response each time was “absolutely not”. He added: “I don’t think I spoke to Shriti Vadera throughout this period at all.”
SNP Treasury spokesperson Stewart Hosie MP said unanswered questions remain over what was known, when, and by whom, about Libor rate-rigging, and what action was being taken to fix the flawed system.
Mr Hosie raised questions over a fall in Libor rates after a meeting between the banks and former Chancellor Alistair Darling during a critical period in the financial crisis.
Mr Darling called in the banks on November 7, 2008 for an emergency breakfast meeting, and reportedly ‘read the riot act’, after an unprecedented 1.5 per cent interest rate cut from the Bank of England had not been passed on to customers.
Immediately following this meeting the UK Interbank three month Libor rate fell by 1.07%, the biggest single daily fall since 1992.
Mr Hosie said: “It remains unclear who knew what, and when about Libor fixing – and whether anyone was taking responsibility to get it sorted.
“At Barclays, Bob Diamond said he didn’t know anything until the report was published, and now Paul Tucker makes clear the Bank of England didn’t know anything before the investigations began.
“Mr Tucker’s testimony also stated that Libor was being used as an important summary statistic about the wellbeing of the economy. Everyone depended on Libor; if it was so flawed, why did no-one make an effort to fix it?
“Paul Tucker has stated he was talking to senior officials at Whitehall. Was no-one there taking responsibility for what was going on? Were they simply asleep at the wheel?
“Witness after witness appears to have known nothing, yet we know central bank were in contact with the Treasury and No 10 officials. Did those in charge simply close their eyes and hope the problem would go away?
“We still need answers to explain why the Libor rates fell following Darling’s ‘breakfast barracking’. At a time of weakening prospects and miserable economic forecasts, why did the rates for lending amongst banks fall so sharply?
“Everybody knows the Libor rates are important – everyone should be able to trust them. So why was action not taken when problems were first identified?”
Alistair Darling, who was Chancellor at the time, and Ed Balls, who was Education Secretary at the time, but was close to the then Prime Minister Gordon Brown, have both denied they had anything to do with the calls to the Bank of England.