In addition to the now-denied wink and nudge from Paul Tucker to Barclays that their LIBOR rates didn’t need to always be so high, the New York Fed was told repeatedly of the possible problems with LIBOR.
The Washington Post’s article, In 2007, New York Fed was told about problems with Libor, summarizes the communication from Barclays to the NY Fed.
The news from last week is that the Barclays CEO claimed that they had notified the NY Fed in 2007. Here is the comment from the Post article:
In testimony last week before the British Parliament, former Barclays chief executive Robert E. Diamond said the bank had repeatedly brought to the attention of U.S. regulators — as well as U.K. regulators — the problems that the bank was experiencing in the Libor market.
He said the bank’s warnings to regulators that Libor was artificially low did not lead to action.
Barclays’ regulator in the United States is the Federal Reserve Bank of New York, which was run at the time by current Treasury Secretary Timothy F. Geithner.
Diamond said that his bank had alerted the New York Fed to issues with Libor at least 12 times.
That would be over a dozen warnings.
How does the Fed describe those conversations?
On Tuesday, the New York Fed said that it had received “occasional anecdotal reports from Barclays of problems with Libor” in late 2007, as the financial crisis was starting.
Barclays got pounded with a $453 million fine. The way things are progressing, other banks will get pounded too.
I’m not terribly troubled by that. However, as the banks get hammered, let’s keep an eye on the regulators in the U.S. and U.K. that knew the LIBOR was being fudged but did nothing about it.