As early as 2008, Timothy Geithner alerted the Bank of England (BoE) to improvements that needed to be made in calculating its Libor rate. As well, the BoE recently released a series of emails showing that there were questions being raised within the bank as early as 2008 about the quality of the Libor calculations.
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These emails clearly dispute the contention by Paul Tucker, the bank’s deputy governor, at a Parliamentary hearing earlier this week that the bank was completely unaware of any dishonesty connected with the setting of the rate.
Geithner’s recommendations were targeted toward improving the integrity and the transparency of the rate setting process to discourage either accidental or deliberate misquoting of the rate.
The Libor rate is used all over the world as the benchmark for setting mortgage and other credit interest rates. The US Commodity Futures Trading Commission, the US Justice Department, and the Financial Services Authority in the UK alleged that the rate was being manipulated by officials for personal gain.
The BoE made a statement on Friday, July 13 that issues were being raised from a broad spectrum of sources both in 2007 and 2008 but there was no evidence at that time that dishonest practices were at play. Questions came from market participants, particularly at Barclays, that suggested there were problems with Libor.
This is yet another scandal that points to insufficient oversight of the investment industry, particularly at large firms and which will likely factor into current regulatory efforts to better police the industry.