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