–Tucker Says No Government Minister Leaned On Him Over Libor
–Says Key Line In Diamond Memo Gives ‘Wrong Impression’
–Tucker Insists He Did Not Know Of Libor Manipulation By Banks
–Re 2007 Libor Meeting, TSC Chair Tells Tucker ‘This Doesn’t Look Good’
–Tsy Ctee Chair Calls Sporadic BOE Approach To Records ‘A Mess’

LONDON (MNI) – Bank of England Deputy Governor Paul Tucker said
today that no note had been taken of a key and controversial
conversation with former Barclays Chief Executive Bob Diamond in October
2008.

Tucker told the Treasury Select Committee that the BOE and the
banking industry had been living through a crisis situation at the time
and that this was the reason why no record of the conversation with the
Barclays’ chief was made.

When pressed on a key line in the Diamond memo which seems to show
Tucker concerned about high Libor submissions from Barclays, the
BOE official said that this line in the memo gave the “wrong
impression”.

Tucker said that his main concern at the time was that the
management of Barclays should be properly overseeing the day-to-day
operations of its money market desk.

The official also rejected any idea that government ministers or
officials had in any way “leaned on” him to get Barclays to “lowball”
their Libor submissions.

Tucker pointed out that the government’s main concern at the time
of the crisis was that the package of liquidity and funding measures put
in place, such as the Credit Guarantee Scheme, were working to ease
funding conditions. Barclays’ high Libor submissions had got officials
worried that the bank was “the next in line” during the financial crisis
of 2008.

Tucker said that Diamond had defended the submissions of Barclays
as being based on actual transactions. That was a concern because
some banks then – HSBC, Santander – were not actually borrowing. That
could mean that when they did return to the interbank market their Libor
rates could be higher than they were estimating and this would
suggest that the government and central bank’s funding measures were
not working.

The deputy governor stressed that he and the BOE were unaware of
manipulation of Libor by the banks until the recent revelations of the
various investigations which had been a “deep shock” to him.

Tucker said that it had been obvious at the recent BOE Financial
Stability Review press conference that there was “great concern” that
trust needed to be reestablished in banking and that “decisive action”
would be needed to achieve that.

The meeting between the Treasury Select Committee and Tucker
proved a tense and testing one for the latter. When questioning Tucker
over his chairmanship of a committee meeting in 2007 at which it was
revealed that banks were not submitting correct Libor estimates, the
Treasury Committee Chairman Andrew Tyrie turned to Tucker, saying:

“This doesn’t look good.”

Tyrie noted that as chairman of the committee meeting in 2007,
Tucker was responsible for the very minutes in which it is clearly
states that Libor was not being correctly assessed by the banks.

Tucker responded that his interpretation of that meeting was that
this was a “sporadically illiquid”/”dysfunctional” market and that
traders needed a technical clarification on how to assess Libor
estimates given these thin market conditions. The BOE official stressed
that he did not view the remarks on Libor made at that meeting as
implying any dishonesty.

Tucker also came in for flack from Tyrie over the failure to take a
note of his conversations with Diamond in October 2008. Tucker responded
that it was the rule of the Bank to make a record of its contacts with
the banks but that this had broken down during the 2007-08 financial
crisis when “so much was going on”.

“This is a mess,” Tyrie responded.

“It was a mess,” Tucker replied, pointing out that at the time in
2008 the world financial system had been on the brink of collapse.

–London Bureau; Tel: +442078627492; email: dthomas@marketnews.com

[TOPICS: M$$BE$]