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New York Fed, Geithner May Have Known About Outrageous LIBOR Problems In 2007

Senate Committee to Question Geithner, Bernanke on Libor Incidents

By Cheyenne Hopkins and Caroline Salas Gage – Jul 10, 2012 12:45 PM ET
The Senate Banking Committee will question U.S. Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke on the scandal surrounding the London interbank offered rate.
Committee Chairman Tim Johnson said in a statement that he will question Geithner and Bernanke at regularly scheduled hearings this month. Geithner is set to testify before the banking committee on the Dodd-Frank financial overhaul act, while Bernanke will deliver his semi-annual monetary policy report. Johnson didn’t say whether he would have a separate hearing on Libor, which is used as a benchmark for $360 trillion in global securities.
Johnson’s panel joins the House Financial Services Committee in seeking information on the scandal that prompted Barclays Plc Chief Executive Officer Robert Diamondto quit last week after the U.K.’s second-biggest lender was fined a record 290 million pounds ($450 million) for attempting to rig interest rates. At least a dozen banks are being investigated for manipulating Libor.
“I am concerned by the growing allegations of potential widespread manipulation of Libor and similar interbank rates by some financial firms,” Johnson said in a statement. “At my direction the committee staff has begun to schedule bipartisan briefings with relevant parties to learn more about these allegations and related enforcement actions.”

Federal Reserve Bank_New York

Representative Randy Neugebauer, a Texas Republican who serves on the House Financial Services committee, sent a letter to William C. Dudley, president of theFederal Reserve Bank of New York, requesting transcripts of communications between the district bank and Barclays relating to setting interbank offered rates from August 2007 to November 2009. Neugebauer asked for the documents by July 13 in the letter, which was dated yesterday.
The New York Fed was aware of potential issues involving Barclays and Libor after the financial crisis began in 2007 and told authorities in the U.K., according to a statement from the district bank.
“In the context of our market monitoring following the onset of the financial crisis in late 2007, involving thousands of calls and e-mails with market participants over a period of many months, we received occasional anecdotal reports from Barclays of problems with Libor,” New York Fed spokeswoman Andrea Priest said in an e-mailed statement.
Following the rescue of Bear Stearns Cos. in March 2008, “we made further inquiry of Barclays as to how Libor submissions were being conducted,” the statement said. “We subsequently shared our analysis and suggestions for reform of Libor with the relevant authorities in the U.K.”

Federal Reserve System Board

Joe Gagnon, a member of the Federal Reserve Board’s Division of International Finance from 1999 to 2008, said the central bank’s Washington staff also began an informal inquiry into Libor in 2007.
“We were hearing these reports about how accurate the data were, and we looked into it,” Gagnon said in an interview. “It wasn’t a formal investigation. We talked to people in the markets.”
Libor is calculated from a daily survey carried out for the British Bankers Association in London, in which the world’s biggest lenders are asked the rate they’re charged to borrow over a variety of short-term maturities in currencies including dollars, euros and yen. Banks are accused of low-balling submissions for the benchmark during the financial crisis.
Gagnon said Fed staff raised questions about whether reporting banks would be able to borrow large amounts at the reported rate, as opposed to a scale of rates as might occur in a normal market. Gagnon said the Fed staff also discussed the issue with the British Bankers Association. Gagnon is currently a senior fellow at the Peterson Institute for International Economics in Washington.
To contact the reporters on this story: Cheyenne Hopkins at Chopkins19@bloomberg.net; Caroline Salas Gage in New York at csalas1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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