print logo
RSS FEED

Who Knew When about the LIBOR Problems?

Saturday, July 14, 2012

‘The New York Fed continued to monitor for problems related to LIBOR.’ And then?

The inaccurate reporting of LIBOR interest rates—certainly among the most important interest rates in the world—by Barclays and other banks is a scandal of the present day. But did central banks and the U.S. government know about the problem four years ago? Yes, they did. This is made clear by the July 13 report just issued by the New York Federal Reserve Bank. It includes these statements:

In the fall of 2007 and early 2008, [there] were indications of problems with the accuracy of LIBOR reporting.

On April 11 [2008]…. The Barclays employee explained that Barclays was underreporting its rate to avoid the stigma associated with being an outlier with respect to its LIBOR submissions, relative to other participating banks.

That same day—April 11, 2008—analysts in the [New York Fed’s] Markets Group reported on the questions surrounding the accuracy of the BBA’s LIBOR fixing rate … The briefing note cited reports from contacts at LIBOR submitting banks that banks were underreporting borrowing rates to avoid signaling weakness.

This report was circulated to senior officials at the New York Fed, the Federal Reserve Board of Governors, other Federal Reserve Banks, and U.S. Department of Treasury.

The New York Fed also acted to brief other U.S. agencies…. raised the subject at a meeting of the President’s Working Group on Financial Markets…. briefed senior officials from the U.S. Treasury in detail.

The New York Fed analysis culminated in a set of recommendations to reform LIBOR [which were emailed on June 1, 2008 to]…. the Governor of the Bank of England.

And then:

The New York Fed continued to monitor for problems related to LIBOR.

And then? Then the report ends.

Alex J. Pollock is a resident fellow at the American Enterprise Institute.

FURTHER READING: Pollock also writes “The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?,” “Would You Settle Your Claims on Social Security for 80 Cents on the Dollar? (I Would),” “How Much Have House Prices Really Fallen?,” and “Shift from Viewpoint of the Borrower.” Jonah Goldberg says “Blame Barclays, Not Capitalism.” Arnold Kling discusses “Why We Need Principles-Based Regulation.”

 

Image by Rob Green/Bergman Group

Most Viewed Articles

‘The American Banking System Might Not Last Until Monday’ By Alex J. Pollock 08/23/2014
Learning from the crises you’ve forgotten.
Peanut Butter’s Many Inventors By Edward Tenner 08/15/2014
The popular product illustrates both the opportunities and the risks of intellectual property.
A Flawed E-Cigarette Regulation By Sally Satel and Alan D. Viard 08/16/2014
The FDA's proposed regulation should not go forward in its current form, or it will undermine ...
100 Years of the Panama Canal By John Steele Gordon 08/15/2014
One of the supreme engineering feats of the early 20th century, the canal has been an immense boon ...
Flash Point: New Oil-by-Rail Rules By Kenneth P. Green 08/20/2014
Proposed regulations of oil-bearing trains pose several challenges and divert us from more ...
 
AEI