Libor scandal: Bankers discussed concerns in 2008

Bank of England governor Sir Mervyn King and US Treasury Secretary Timothy Geithner discussed their concerns about the Libor inter-bank rate system as early as 2008, documents show.

Mr Geithner, who at the time was head of the New York Federal Reserve, called for changes to the system.

He said these should include procedures to prevent misreporting.

The Bank of England said concerns were widespread at the time, but there was then no evidence of wrongdoing.

Several banks are being investigated for allegedly manipulating Libor, the daily figure which reflects the amount that banks are charging to lend each other money and which is the benchmark for millions of financial transactions.

It stands for London Interbank Offered Rate and is made up of banks' own estimates of their borrowing costs.

Barclays has agreed to pay a fine of £290m ($450m) to UK and US authorities for giving inaccurate figures and trying to manipulate Libor rates between 2005 and 2008, either for profit or to reduce concerns about the extent of financial stress it was under.

The Bank of England said the two men had met in May 2008 at a meeting of central bankers in Basel. Mr Geithner then sent Sir Mervyn a series of recommendations for enhancing the credibility of Libor.

PDF download June 2008 emails to/from Bank of England[270MB]

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This included one that would "eliminate the incentive to misreport", the document, released by the Bank of England, showed.

It suggested that figures should be published without identifying which banks may have had particularly high or low borrowing costs.

This is important as a relatively high rate would suggest banks were unwilling to lend to that financial institution because of fears about its financial health.

There was a great deal of concern, both within Barclays and the government, as to why Barclays' Libor submissions were higher than other banks at the height of the financial crisis at the end of 2008.

This led some to suspect that - after the part-nationalisations of RBS, Lloyds and HBOS - Barclays would be next, deputy Bank of England governor Paul Tucker told MPs on the Treasury Committee earlier this month.

It was during this period that a senior Barclays executive instructed traders to keep Libor rates low, although regulators suggested that the manipulation attempts had been going on since 2005.

This latest release of emails between the two central bankers underlines that concerns about the reliability and credibility of Libor figures were being discussed at a high level, years before the Libor scandal came to light.

In his evidence session, Mr Tucker also described the Bank of England's unease about the Libor system in 2008.

He told MPs that he had personally rung the major banks at that time, urging them to take seriously the review of Libor that the British Bankers' Association - which runs the system - was then carrying out.