Today was the day that suddenly everyone knew that Libor was rigged, always. Not municipalities which entered into credit default swaps, maybe—though in which case, who was giving them advice?—but nearly everyone else. And absolutely the Federal Reserve Bank of New York, which revealed in response to a congressional inquiry that a Barclays employee told FRBNY that the lender was low-balling its Libor submissions to protect the firm’s share price. “I’m going to be frank and honest with you,” the employee said according to a telephone transcript released today:
You know, you know 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, and the next thing we knew, there was um, an article in the Financial Times, charting our Libor contributions and comparing it with other banks and inferring that this meant that we have a problem raising cash in the interbank market. 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. 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.
That phone call took place in April 2008, and the message was shared with the other Federal Reserve banks, the U.S. Treasury and the Bank of England. But not, apparently, the
Securities and Exchange Commission U.S. Department of Justice, the Commodity Futures Trading Commission or the the British Financial Services Authority, the three regulators that settled Libor-rigging charges with Barclays last month to the tune of $450 million.
Take this settlement document, which culls from emails and telephone conversations to spell out Barclays executives disinclination to stick their heads “above the parapet” by submitting U.S. dollar Libor estimates above those of other submitters:
During the financial crisis period, Barclays directed its U.S. Dollar Libor submitters to lower their daily U.S. Dollar Libor submissions in order to protect Barclays’ reputation against what it believed were negative and unfair media and market perceptions that Barclays had a liquidity problem based in part on its high Libor submissions.
Which seemed like good work on the part of the three regulators when the settlement was reached. But which seems like a lot of effort to have uncover something the Fed had known for years.