WASHINGTON (MNI) – The New York Federal Reserve Thursday released a
series of documents relating to the Barclays manipulation of LIBOR, in
response to the House Financial Services Committee’s request.
The documents provided include a June 2008 memo by then NY Fed
president Tim Geithner to Bank of England Gov. Mervyn King with
recommendations on “enhancing the credibility of LIBOR.”
The documents are available at:
The New York Fed’s statment follows:
Attached are materials related to the actions of the Federal
Reserve Bank of New York (New York Fed) in connection with the
Barclays-LIBOR matter. These include documents requested by Chairman
Neugebauer of the U.S. House of Representatives, Committee on Financial
Services, Subcommittee on Oversight and Investigations. Chairman
Neugebauer requested all transcripts that relate to communications with
Barclays regarding the setting of interbank offered rates from August
2007 to November 2009. Please note that the transcript of conversations
between the New York Fed and Barclays was provided by Barclays pursuant
to recent regulatory actions, and the New York Fed cannot attest to the
accuracy of these records. The packet also includes additional materials
that document our efforts in 2008 to highlight problems with LIBOR and
press for reform. We will continue to review our records and actions and
will provide updated information as warranted.
An important and longstanding role of the New York Fed Markets
Group is to monitor a wide range of markets for the purpose of
understanding and reporting on market conditions and market functioning.
Each day, analysts gather information on a nearly continuous basis by
speaking with market participants and asking both general and specific
questions about prevailing market conditions, the magnitude of movements
in prices or the volume of activity, or any other issues in the markets.
These analysts also review large amounts of market commentary they
receive via individual and mass-distribution emails, and review a wide
variety of data feeds.
Following the onset of the financial crisis in 2007, markets
monitoring played a critical role by identifying the nature and location
of rapidly mutating financial stress. Markets Group analysts engaged
with market participants including staff at Barclays – to better
understand the nature of market stress. In the course of these
exchanges, market participants reported dysfunction in the form of
illiquidity and anomalous pricing across many different markets.
Among the information gathered through markets monitoring in the
fall of 2007 and early 2008, were indications of problems with the
accuracy of LIBOR reporting. LIBOR is a benchmark interest rate set in
London by the British Bankers Association (BBA) under the broad
jurisdiction of the UK authorities, based on submissions by a panel of
mostly non-US banks. The LIBOR panel banks self-report the rate at which
they would be able to borrow funds in the interbank money market for
various periods of time. As the interbank lending markets dried up these
estimates became increasingly hypothetical.
Suggestions that some banks could be underreporting their LIBOR in
order to avoid appearing weak were present in anecdotal reports and
mass-distribution emails, including from Barclays, as well as in a
December 2007 phone call with Barclays noting that reported Libors
appeared unrealistically low.
As market strains intensified in early 2008, to better understand
the nature and extent of the potential problems with LIBOR, analysts in
the Markets Group gathered additional and more in-depth information. As
part of this broad effort, on April 11, an analyst from the Markets
Group queried a Barclays employee in detail as to the extent of problems
with LIBOR reporting.
The Barclays employee explained that Barclays was underreporting
its rate to avoid the stigma associated with being an outlier with
respect to its LIBOR submissions, relative to other participating banks.
The Barclays employee also stated that in his opinion other
participating banks were also under-reporting their LIBOR submissions.
The Barclays employee did not state that his bank had been involved in
manipulating the rate for its own trading advantage. Immediately
following this call, the analyst notified senior management in the
Markets Group that a contact at Barclays had stated that underreporting
of LIBOR was prevalent in the market, and had occurred at Barclays.
That same day – April 11, 2008 – analysts in the Markets Group
reported on the questions surrounding the accuracy of the BBAs LIBOR
fixing rate in their regular weekly briefing note. The briefing note
cited reports from contacts at LIBOR submitting banks that banks were
underreporting borrowing rates to avoid signaling weakness. In
accordance with standard practice for briefing notes produced by the
Markets Group, this report was circulated to senior officials at the New
York Fed, the Federal Reserve Board of Governors, other Federal Reserve
Banks, and U.S. Department of Treasury. The briefing note is included in
Five days later, the first media report on problems with LIBOR
emerged. From this point onwards the notion that banks were
underreporting LIBOR in order to avoid signaling weakness was widely
discussed in the press and in market commentary.
In late April and into May 2008, New York Fed officials met to
determine what steps might be taken to address the problems with LIBOR.
The New York Fed also acted to brief other US agencies. On May 1 Tim
Geithner, then President of the New York Fed, raised the subject at a
meeting of the Presidents Working Group on Financial Markets (PWG), a
body that comprised the heads of the principal regulatory agencies in
the US, chaired by Treasury. On May 6 New York Fed staff briefed senior
officials from the U.S Treasury in detail.
On May 20 the Markets Group sent a further report on problems with
LIBOR to the broad set of senior officials who receive its regular
analysis. The report is included in this packet. On June 5, New York Fed
officials also briefed an interagency working group comprised of staff
from the PWG. The presentations given to Treasury and to the PWG staff
are included in this packet.
New York Fed officials also met with representatives from the
British Bankers Association to express their concerns and establish in
greater depth the flaws in the LIBOR-setting process. The New York Fed
analysis culminated in a set of recommendations to reform LIBOR, which
was finalized in late May. On June 1, 2008, Mr. Geithner emailed Mervyn
King, the Governor of the Bank of England, a report, entitled
Recommendations for Enhancing the Credibility of LIBOR.
Among the recommendations were specific proposals to improve the
integrity and transparency of the rate-setting process, including the
suggestion that LIBOR submissions should be subject to internal and
external audit of the accuracy of the reporting by banks. A copy of
this email and the memorandum is included in this packet.
Shortly afterwards, Mr. King confirmed to Mr. Geithner that he had
transmitted the New York Fed recommendations to the British Bankers
Association soon afterwards. After putting forward recommendations for
LIBOR reform to the UK authorities, the New York Fed continued to
monitor for problems related to LIBOR.
As is clear from the work culminating in the report to Mr. King of
the Bank of England, the New York Fed helped to identify problems
related to LIBOR and press the relevant authorities in the UK to reform
this London-based rate.
** MNI Washington Bureau: 202-371-2121 **