Federal Reserve Admits It Knew Of Barclays Libor "Problems" In 2007 And 2008
Last Tuesday we suggested that "Now The Fed Gets Dragged Into LiEborgate" when we observed that "Barclays also cited subsequent research by the New York Federal Reserve staff members that, according to the lender, concluded that banks’ Libor quotes were systematically below their borrowing rates by 39 basis points after the Lehman bankruptcy. “Barclays own submissions for tenors of 1 month to 1 year Libor were higher than actual Barclays trades on 97% of the occasions when Barclays had actual trades during the financial crisis,” the lender said." It seems that unlike the BOE, which had no idea of any Barclays problems and was merely calling up Diamond now and then to make sure the bank's money market risk mechanisms were operational and to chit chat about the weather (as per the BOE at least), the Fed has decided to take the high road and openly admit it was well aware of Barclays' LIBOR "problems." And like that the Senatorial circus just got exciting, while that popping noise is bottles of Bollinger going off at every class action lawsuit legal firm.
The Federal Reserve Bank of New York was aware of potential issues involving Barclays Plc and the London interbank offered rate after the financial crisis began in 2007, 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.
“In the spring of 2008, following the failure of Bear Stearns and shortly before the first media report on the subject, 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.”
Representative Randy Neugebauer, a Texas Republican who serves on the House Financial Services committee, sent a letter to New York Fed President William C. Dudley dated yesterday 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.
The Senate Banking Committee has begun to schedule briefings “with relevant parties to learn more about these allegations and related enforcement actions,” Senator Tim Johnson, a South Dakota Democrat who chairs the Senate Banking Committee, said in a statement.
Johnson also said that he is asking Treasury Secretary Timothy F. Geithner and Fed Chairman Ben S. Bernanke to “be prepared to answer Senators’ questions on this matter” at upcoming hearings.
It knew, and did nothing, or rather, it knew, and advised nobody who relies on LIBOR spreads to fixed income products (that would be everyone by the way, and certainly those who had Adjustable Rate Mortgages and virtually every municipality locking in rates courtesy of JPM's swaps) that Libor was manipulated. And more importantly, the Fed never shared any of this with the BOE or any of Barclays' regulators?
But guess whose favorite's tax expert just got dragged under the bus? Via Reuters:
According to the calendar of then New York Fed President, Timothy Geithner, who is now U.S. Treasury Secretary, it even held a "Fixing LIBOR" meeting between 2:30-3:00 pm on April 28, 2008. At least eight senior Fed staffers were invited.
It is unclear precisely what was discussed at this meeting or who attended. Among those invited, along with Geithner, was William Dudley, who was then head of the Markets Group at the New York Fed and who succeeded Geithner as its president in January 2009. Also invited was James McAndrews, a Fed economist who published a report three months later that questioned whether Libor was manipulated.
"A problem of focusing on the Libor is that the banks in the Libor panel are suspected to under-report the borrowing costs during the period of recent credit crunch," said that report in July 2008 that examined whether a government liquidity facility was helping ease pressure in the interbank lending market.
When asked for comment, McAndrews directed questions to a New York Fed spokeswoman. Dudley could not be immediately reached for comment.
Good times. And yes, we are looking forward to Maxine Waters' questioning of Tim Geithner over Lieborgate.