In 2007, New York Fed was told about problems with Libor


Barclays has admitted to rigging Libor, an interest rate that sets the standard for lending in a wide variety of markets — from corporate bonds to credit cards and some mortgages. (Chris Ratcliffe/BLOOMBERG)

The Federal Reserve Bank of New York said Tuesday it had received word as early as 2007 from the British bank Barclays about problems with the benchmark interest rate that underpins much of global lending.

Barclays has admitted to rigging Libor, an interest rate that sets the standard for lending in a wide variety of markets — from corporate bonds to credit cards and some mortgages.

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.

The disclosure came as Washington policymakers began to increase their scrutiny of the role of regulators in the scandal surrounding the London interbank offered rate, or Libor.

Every day, major banks around the world submit their borrowing costs, which are then used to compute an interbank rate. Barclays was accused of concealing its borrowing costs — in an effort to drive up profits and send signals that the bank was healthier than it might have been.

The bank agreed to pay $453 million to American and British regulators to end investigations into the scandal, although other banks’ actions are being reviewed.

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.

After receiving initial reports in 2007, the New York Fed said, it made additional inquiries of Barclays about its Libor operations, and subsequently made suggestions for changes to British authorities.

Geithner personally participated in several conversations with Barclays executives, according to his New York Fed calendar, later posted on the Web site of the New York Times. It wasn’t clear if these meetings focused on the Libor issues now coming to light.

The House Financial Services Committee has sent the New York Fed a letter asking about its handling of the issue. The letter, signed by Rep. Randy Neugebauer (R-Tex.), chairman of the subcommittee of oversight and investigations, asked for all communications that relate to Barclays’ Libor issues between August 2007 and November 2009 .

On Tuesday, the Senate Banking Committee also said it would begin to hold meetings with individuals involved with the matter to learn more about the allegations and related enforcement actions.

“It is important that we understand how any manipulation may impact American consumers and the U.S. financial system,” said committee chairman Sen. Tim Johnson (D-S.D.).

He said he planned to ask Geithner and Federal Reserve Chairman Ben S. Bernanke about the matter in testimony later this month.

The Treasury Department declined to comment.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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