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US Treasury warned BoE on Libor in 2008


Reuters has seen documents that show US authorities

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Concern is growing about the wider impact of the rate-rigging scandal after documents have arisen showing a top US official talked to Bank of England governor about changing the way Libor was set in 2008.

According to documents obtained by Reuters, US treasury secretary Timothy Geithner forced the Bank in June 2008 to change the way Libor, the key interest rate used by banks to lend money to each other, was calculated.

Geithner, who was the head of the New York Federal Reserve Bank at the time, sent a private email to Bank governor Mervyn King recommending six ways to enhance the credibility of the London interbank offered rate.

More than a dozen banks are under investigation by authorities in Europe, Japan and the US over suspected rigging of the global borrowing cost benchmark, which is used in contracts worth trillions of dollars globally.

The 1 June 2008, email, first reported by the Washington Post, included a two-page memo dated 27 May of that year that suggested establishing best practices for calculating Libor, "including procedures designed to prevent accidental or deliberate misreporting".

It recommended the British Bankers' Association require that auditors for banks reporting their borrowing costs for the calculation of Libor attest to the accuracy of their rates.

London-based Barclays is the only bank so far to admit any wrongdoing in giving false information as part of the complex process of setting Libor, in order to influence the pricing of derivatives and also to rebut speculation about the weakness of its balance sheet during the financial crisis.

Barclays agreed to pay fines of £290 million in a settlement with US and British officials. Libor is used for $550 trillion of interest rate derivatives contracts, and influences rates from mortgages to student loans to credit cards.

The scandal so far has been mostly confined to London, with public outcry that regulation in Britain was lax. But concern has grown about the wider impact on consumers and the involvement of US regulators.

A group of Democratic senators on Thursday pushed for the US Justice Department and financial regulators to step up investigations into whether global banks manipulated the interest rate benchmark. US state attorneys general are also jumping into the widening scandal, a move that could open a new front against the top global banks.

The scandal has forced three senior executives at Barclays to resign including chief executive Bob Diamond, who was considered to be the highest paid man in British banking.

photo credit: Reuters

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US Treasury warned BoE on Libor in 2008
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