– The Bank of England told us to do it, claims Barclays (Telegraph, July 3, 2012):
The Deputy Governor of the Bank of England encouraged Barclays to try to lower interest rates after coming under pressure from senior members of the last Labour government, documents have disclosed.
A memo published by Barclays suggested that Paul Tucker gave a hint to Bob Diamond, the bank’s chief executive, in 2008 that the rate it was claiming to be paying to borrow money from other banks could be lowered.
His suggestion followed questions from “senior figures within Whitehall” about why Barclays was having to pay so much interest on its borrowings, the memo states.
Barclays and other banks have been accused of artificially manipulating the Libor rate, which is used to set the borrowing costs for millions of consumers, businesses and investors, by falsely stating how much they were paying to borrow money.
The bank claimed yesterday that one of its most senior executives cut the Libor rate only at the height of the credit crisis after intervention from the Bank of England.
The memo, written on Oct 29, 2008, by Mr Diamond and circulated to two other senior bank officials, said: “Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing.”
The note claimed that Mr Diamond had warned Mr Tucker that “others in the market [are] posting rates at levels that were not representative”.
It added: “Mr Tucker stated the level of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.” Mr Diamond, who resigned yesterday, is now expected to use the memorandum to claim that the bank was not seeking to boost profits during the credit crisis by manipulating Libor. He will appear before MPs today to face questions on the banking scandal.
Mr Diamond sent the memo to other senior colleagues, including Jerry del Missier, the bank’s chief operating officer, who “passed down a direction” to others in the bank to cut the Libor rate.
The Bank of England has said it is “nonsense” to say that Mr Tucker was instructing Mr Diamond to artificially suppress the rate. Mr del Missier resigned yesterday from Barclays but regulators have not pursued “enforcement action” against him.
Government sources suggested that Baroness Vadera, one of Gordon Brown’s closest colleagues, was responsible for the contact with the Bank of England. Ed Balls, the shadow Chancellor, was also under pressure to disclose whether he played any role in the scandal.
Both claim not to remember any such interventions.
The disclosure of the document threatened to plunge one of the biggest high street banks into open war with the country’s central bank, which will soon assume responsibility for regulating Barclays. In one of the most dramatic days in British corporate history, Mr Diamond resigned yesterday, less than 24 hours after telling staff he was the right man to reform the bank.
David Cameron and George Osborne welcomed the resignation. The Chancellor is understood to have discussed Mr Diamond’s position with Sir Mervyn King, the Governor of the Bank of England, and Marcus Agius, the Barclays chairman, on Monday.
Mr Agius telephoned Mr Osborne at 11.30pm on Monday to warn him that Mr Diamond would be resigning. The Prime Minister was informed shortly before midnight. Last week, Barclays paid a record £290 million fine after it admitted manipulating the rate.
RBS and Lloyds Banking Group are among other banks also facing investigation over their role in the scandal.
Last night, Barclays released a detailed account of the “background” to their settlement with regulators over the Libor scandal.
The bank said it had spent nearly £100 million over the past three years investigating its role in the scandal to “ensure no stone has been left unturned”.
It reviewed 22 million documents, more than one million audio files and conducted more than 75 interviews.
It found that between 2005 and 2009 certain traders had sought to inappropriately manipulate the Libor rate.
This stopped in May 2009 and the senior management says the manipulation was done without their knowledge.
However, separately during the credit crisis of 2007 and 2008, Barclays and its top executives were involved in discussions with regulators over its high Libor rate. This did lead to its rate being artificially lowered during this period as the bank was facing unjustified “market speculation” that it was struggling to borrow money.
During this period, senior executives claim that they repeatedly raised concerns with the Bank of England and the Financial Services Authority, the City regulator, over the low levels at which other banks were setting their Libor rates. One senior Barclays insider said last night: “Barclays had been telling the Bank of England, including Mr Tucker, that the banks were massaging numbers lower ever since 2007.
“Everyone was very clear to anybody they spoke to from the Bank of England, the Government, the FSA and the British Bankers Association that this was what was happening.”
The allegations are set to lead to senior Bank of England and FSA figures being called before MPs in the coming weeks to answer questions about their role in the scandal.
In a speech yesterday, Lord Turner, the chairman of the FSA, said: “The cynical greed of traders asking their colleagues to falsify their Libor submissions so that they could make bigger profits has justifiably shocked and angered people, in particular when we are facing hard economic times provoked by the financial crisis.
“But sadly it is clear that the behaviours evidenced in the Libor case were not, in the years before the crisis, confined to this specific area of financial activity.”
He added that other banks were likely to admit they had manipulated rates and be forced to pay fines, “before the end of the year”.
The Prime Minister has already announced plans for a Parliamentary inquiry to be held into the conduct of the banks.
However, Labour is now pressing the Mr Cameron to announce an independent inquiry, to be led by a judge modelled on the Leveson Inquiry into the media.
MPs are preparing to vote tomorrow on the form of such an inquiry into the banks that will be held in the coming months.