Parliamentary questions tabled over LIBOR rate rigging scandal

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By G.A.Ponsonby
 
Fresh revelations around the manipulation of the Libor rate have prompted a series of Parliamentary questions from SNP Treasury spokesperson Stewart Hosie.

As new details emerge over the scandal, with the Bank of England responding to evidence it was pressed to make changes in the way that Libor was set in 2008, the MP said it raised serious new questions for Treasury Ministers in office at the time.

With the Financial Times reporting concerns about Libor as early as September 2007, Mr Hosie has tabled a series of parliamentary questions to the Treasury seeking total disclosure over discussions and briefings involving Ministers and officials.

Mr Hosie – a member of the Treasury Select Committee – said:

“With new details emerging over the Libor scandal from the United States, we need to fill in the gaps and find out who knew what and why action was not taken earlier by those in charge.

“There are three pillars to the tripartite system, yet we have heard very little from the Treasury.  The time has come for total disclosure.

“It is clear that problems with Libor – reported in the FT in September 2007 – were no secret in City circles yet we are supposed to believe that nobody in Downing Street at the time or the FSA knew what was going on – that is very hard to believe.

“We need to know how detailed the discussions were between Central Banks, between the regulators at the FSA and their US counterparts, as well as between Ministers and Officials at the Treasury.

“This is exactly why the SNP wanted an independent judge led and wide-reaching inquiry to root out the issues and bring all parties involved to account.”

The fresh revelations contained in US documents resulted in Barclays taking out newspaper ads yesterday in order to apologise and placate growing public anger.  The documents were released after US authorities demanded to see all correspondence that the New York Federal Reserve had with Barclays over the Libor issue.

One document released by the Fed detailed a conversation between staffer Fabiola Ravazzolo and an unnamed Barclays employee in April 2008, including the following edited extract:

Fabiola Ravazzolo: And, and why do you think that there is this, this discrepancy? Is it because banks maybe they are not reporting what they should or is it um…

Barclays employee: Well, let’s, let’s put it like this and I’m gonna be really frank and honest with you.

FR: No that’s why I am asking you [laughter] you know, yeah [inaudible] [laughter]

BE: You know, you know we, we went through a period where we were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates.

FR: Mm hmm.

BE: And the next thing we knew, there was um, an article in the Financial Times, charting our LIBOR contributions… and inferring that this meant that we had a problem… and um, our share price went down… So it’s never supposed to be the prerogative of a, a money market dealer to affect their company share value.

FR: Okay.

BE: And so we just fit in with the rest of the crowd, if you like… So, we know that we’re not posting um, an honest LIBOR. And yet and yet we are doing it, because, um, if we didn’t do it it draws, um, unwanted attention on ourselves.

FR: Okay, I got you then.

BE: And at a time when the market is so um, gossipy… it was not a useful thing for us as an organization.

The documents also revealed communications between Sir Mervyn King and Tim Geithner, where the former Federal Official warned the BoE Head about possible Libor rate rigging in 2008.  Sir Mervyn said that he had passed the concerns on to his deputy, Paul Tucker.

However, in an appearance before the Commons Treasury Committee last week, Mr Tucker said that he had only been made aware of the scale of the Libor rigging in recent weeks.  Mr Tucker did not mention the memo, though he did say that concern over the Libor rate-setting process was emanating from the United States in the spring of 2008.

A separate email released by the Bank of England on Friday shows that Mr Tucker forwarded the Geithner memo to Angela Knight, the former chief executive of the British Bankers Association.  She responded saying that “changes had been made to incorporate the views of the Fed”.

It has also emerged that in August 2007, a Barclays trader claimed that the Libor submission from another British bank, Lloyds banking group, was also “too low”.

It follows revelations that UK regulatory bodies ignored five warnings about Libor.  The earliest of these warnings was in Autumn 2007 at a meeting attended by eight Bank of England officials including Paul Tucker, and a representative from the FSA as well as executives from the world’s biggest banks.   Also present was an official from the British Bankers’ Association – the body charged with overseeing Libor.

According to the Chicago Tribune, minutes of the meeting show that Libor rates were discussed and it was noted that the rates were lower than actual bank borrowing rates.

It has also emerged that Barclays outgoing Chairman, Marcus Agius, has hinted that other banks may about to be drawn into the rate rigging scandal that has already seen Barclays fined £290m by UK regulators.

In an internal memo, sent to staff at the bank on Friday, Mr Agius said: “As other banks settle with authorities, and their details become public, and various governments’ inquiries shed more light, our situation will eventually be put in perspective.”

The new revelations come ahead of Sir Mervyn’s appearance before the Treasury Select Committee (TSC) on Tuesday, where he will be asked questions about the Libor scandal.

The parliamentary questions tabled by Mr Hosie are set out below:

1.   To ask the Chancellor of the Exchequer whether Her Majesty’s Treasury had discussions with major UK banks, including Barclays and RBS, on the subject of reducing LIBOR between 1st January 2007 and 31st December 2010 and if he will publish any associated correspondence or briefings?

2.   To ask the Chancellor of the Exchequer whether Her Majesty’s Treasury briefed ministers between 1st January 2007 and 31st December 2010 on the regulatory concerns about the credibility of LIBOR rates in the light of an investigation in the USA and if he will publish any associated correspondence or briefings?

3.   To ask the Chancellor of the Exchequer when Her Majesty’s Treasury was first informed of LIBOR fixing allegations; by whom; what was its immediate response and if he will publish any associated
correspondence or briefings?

4.   To ask the Chancellor of the Exchequer whether Her Majesty’s Treasury considered the fixing of LIBOR to have potentially impacted the ability of UK bank’s to remain solvent or to avoid the need for taxpayer capital during the 2008 financial crisis?

5.   To ask the Chancellor of the Exchequer whether officials recommended a statement to Parliament between 2007 and 2009 on concerns about the credibility of LIBOR in the context of a liquidity crisis and confidence and trust in LIBOR and if he will publish any associated correspondence or briefings?

6.   To ask the Chancellor of the Exchequer if the position of Her Majesty’s Treasury on LIBOR being set by the banks has changed since (a) January 2007; (b) November 2008 and (c) May 2010 and if that change in position has considered how the setting of the LIBOR rate could be supervised more effectively, particularly in the context of a banking crisis?

7.   To ask the Chancellor of the Exchequer whether officials, special advisers or ministers discussed LIBOR rates with any senior representatives of Barclays in the week after Bank of England Deputy
Governor Paul Tucker’s call with Barclays on 28th October 2008 and if he will publish any associated minutes, correspondence or briefings?

8.   To ask the Chancellor of the Exchequer whether officials, special advisers or ministers discussed the level of LIBOR rates set by UK banks at a meeting with industry heads on Friday 6th November 2008 and if he will publish any associated minutes, correspondence or briefings?

9.      To ask the Chancellor of the Exchequer whether officials, special advisers or ministers raised any questions in meetings or by correspondence concerning the reduction in the LIBOR rate following the meeting with the banks on 6th November 2008?

10.  To ask the Chancellor of the Exchequer whether officials, special advisers or ministers have discussed since 1st January 2011 the manipulation of LIBOR within RBS between 2005 and 2010 and when an announcement on any involvement by RBS in such activity is expected?