UK Official Offers Unconvincing Libor Manipulation Testimony

Arjun Dave
09 Jul, 2012
New York City

Deputy Governor of the Bank of England Paul Tucker defended his role in the widening Libor scandal investigation but failed to convince skeptics. His weak defense raised more questions about the role of central bankers and regulators at the height of the 2008 crisis.

[R]8:40 PM London – Deputy Governor of the Bank of England Paul Tucker defended his role in the widening Libor scandal investigation but failed to convince skeptics. His weak defense raised more questions about the role of central bankers and regulators at the height of the 2008 crisis.[/R]

London banking industry took another hit as Libor investigation widens to central bank officials. Paul Tucker, Deputy Governor of the Bank of England said in his testimony to a parliamentary committee today that he never encouraged banks to report artificially lower rates and was unaware that some banks had sought to fix the rate.

He added that the central bank and government at the time were not focused on Libor rates but instead wanted to make sure Barclays would not collapse and had the adequate funding at the height of the financial crisis in 2008.

For more than five years, the UK banking industry has been abuzz with rumors that several UK based banks were reporting rates that were lower than the market rates and the Bank of England and securities industry regulators have either ignored or failed to act to stem the practice. Their lack of action had in fact encouraged the practice of rate manipulation that in turn helped traders at banks for personal gains.

London has become an epicenter of financial scandals and large losses have been linked to reckless derivatives trading that traced back to London trading desks in 2008 that led to the fall of the largest insurance company AIG and contributed to the demise of Lehman Brothers and Bear Stearns.

Tucker said he was aware that interbank rate reporting system was flawed and “markets were not working” at the time of the crisis as most lending had dried up and “for months during the height of the crisis, the submissions were based on estimations.”

Tucker wavered after committee members asked him whether he was confident that the Libor is no longer manipulated.

Tucker answered, “I cannot be confident about anything after learning about this cesspit.”

International investors are concerned that the UK regulators and the Bank of England have for a long time ignored the weak and selective reporting of Libor by banks that cannot be verified by independent authorities. Libor is used as a reference rate for trillions of dollars of international contracts.

The European Commission regulators are expected to provide new amendments to market abuse legislation in works that would make manipulating Libor and Euribor and other reference rates.

UK government and central bank was forced to offer emergency lending to British banks totaling $310 billion in three years and offered special loans to Lloyds Banking Group and Royal Bank of Scotland that were referenced to rates anchored to Libor.