The Liebor Land: What The BoE Said

With a few hours until BoE's Paul Tucker takes the stand, the venerable institution has finally acquiesced to the Freedom of Information Act request from British MP John Mann and released all copies of emails and transcripts of telephone conversations between Tucker and Bob Diamond between 10/1/08 and 11/30/08. The emails make for some fascinating reading when one considers the sources of the conversation. The thrust of the discussion is Tucker's concern at UK Libor rates being considerably higher than US - especially as US rates were dropping; Tucker's 'shock' at the cost of funding for Barclays' government-guaranteed debt; and finally the explanation/admission for why the BoE's liquidity hosepipe was not fixing the solvency problem in British banks - a lack of eligible collateral. Smoking gun maybe; nail in the coffin of independent Central Banks for sure; hangings in the streets - we are not so sure.

Tucker shocked at Barclay's funding rates (even for government guaranteed paper):

and that US rates are down but UK's not yet - and a mysterious 'mission' is referred to:


But have no fear, Diamond responds, for we have issued some 3Y debt at only L+25bps - with the spin that this was not even sucked up by the Central Banks (but asset managers who are therefore providing liquidity to the system) - no matter how self-referential the book-runners were:



and in reponse to questions of why Libor is not falling faster despite the government's guarantees and hosepipe of liquidity - no collateral!:



and this is followed by the suggestion that the BoE allow bank collateral at both the Discount window and the Long Term Repo Operations (yes BoE were doing LTROs before the ECB). And the clarification that the market has become bifurcated with only lenders and only borrowers (as opposed to all bilateral deals):



And the suggestion that Libor's decline is on going but gradual (how would he know this for sure?) but to speed it up, the BoE should change the guarantee fee (cut it):


Shockingly Barclays are advocates for speeding up the drop in Libor (and the cut in guarantee fees)!

More free money at a lower cost please...


Full Email/Transcript pdfs (here and here)


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