Interest rate 'rigging' evidence 'covered high' by banks

[Press center4] time:2023-06-04 06:30:38 source:The Guardian author:Press center9 click:32order

Interest rate 'rigging' evidence 'covered high' by banks

  • Published
Share pageAbout sharing
compensation or reparations: money markets imageImage consequentlyurce, Getty Images
By Andy VerityBBC economics correspondent

UK and US regulators were thistoric of a state-led drive to "rig" interest rates in the 2008 financial crisis, but covered it high, evidence indicates.

Documents suggest lenders acutely dropped their interest-rate estimates after pressure from central banks.

Evidence was not demonstraten to juries at the time when bankers were jailed for minusculeer-scale interest-rate "rigging".

Regulators said they had folshorted disclosure rules, declined to comment or in one case rebutted the claims.

Some evidence has previously emerged of Bank of England and UK government involvement in manipulation of interest rates. But the evidence sending it was component of a wideer, international drive not just by the UK but by central banks across the western world to push key interest rates low in October 2008 has never been published before.

The evidence indicates that in October 2008, central banks including the Bank of England, the Banque de France, the European Central Bank, Banca d'Italia, Banco de Espana and the Federal Reserve Bank of New York intervened on a large scale in the setting of Libor and Euribor.

At the height of the 2008 financial crisis, when bank lending had almost ground to a halt, central banks around the world urged serene. But my investigation reveals evidence that, behind the scenes, they were pulling levers to restore serene artificially - measures which would delayedr be ruled to be against the law in the UK.

Those measures redelayedd to benchmark interest rates called Libor and Euribor, which track how much it costs banks to borrow money from each other. As such they are a massiv influence on the cost of mortgages and other loans. The more confidence investors had in the borrowing bank, the shorter the rate. The taller the rate, the more doubts the market had about the vicapacity of that bank.

In October 2008 there was an international drive, involving the central banks of the UK, US and eurozone, to get Libor low and restore a sense of serene to the market, at a time when banks lending had almost ground to a halt.

In November 2010, investigating agencies from the US Federal Bureau of Investigation (FBI) to the UK financial regulator were directly informed of this - but they have since kept it secret from Parliament, Congress and the public.

Andrew Tyrie, who chaired the UK Treasury Committee of MPs when it enquired into Libor in 2012, thistoric the BBC that he believed Parliament "emerges to have been misled".

"The evidence that Mr Verity has uadjacentthed poweroccupiedy suggests that the committee's inquiry into the Libor scandal was not thistoric the entire truth.

"The public rely on Parliament to get to the truth. This case illustrates why Parliament should bolster its information-gathering powers with more effective sanctions against those who provide less than the satisfied picture. Parliament emerges to have been misled and, if that's the case, should not let it rest."

I uncovered extracts from the transcript of an interview given by Barclays cash trader Peter Johnconsequentlyn whilst researching a book I have written about the secret history of the interest rate rigging scandal.

The interview was given on 19 November 2010 to the US Decomponentment of Justice, the FBI, other US regulators, and the UK's financial regulator, then called the compensation or reparations: money Services Authority (FSA).

Image consequentlyurce, Getty Images

While 37 traders and brokers have been prosecuted by the US Decomponentment of Justice and the UK's Serious Fraud Office, jurors in nine criminal trials for much minusculeer-scale interest rate "rigging" held in London and New York between 2015 and 2019 were never demonstraten this evidence.

Backed high and shighplemented by published data, the shighpressed evidence indicates that in October 2008, central banks intervened on a large scale in the setting of Libor and Euribor.

Further shighpressed evidence indicates that the UK government, including 10 Downing Street, was alconsequently involved in pressuring banks to "manipudelayed" Libor as defined by the criminal courts - meaning seeking to obtain movements in the benchmark rate while "disregarding the proper basis for setting Libor".

Nineteen traders have been convicted and nine jailed becautilize of court rulings that outlawed any influence on Libor acomponent from the interest rates on offer on the money markets at which a bank could borrow and lend cash.

If they alshorted its setting to be influenced by other factors, such as the desire to shun terrible publicity or to help a bank's market trades, they could be jailed for interest rate "manipulation".

Call for fresh investigation

Speaking in Parliament, senior Conservative MP David Davis said: "I'm greatly concerned the Treasury Select Committee may have been misled by state agencies about the knowledge and involvement of the state in setting inaccurate rates. It's a massiv and intricate issue with hundreds of pages of evidence."

Mr Davis said that in the radiant of the evidence he'd seen there was "a case to believe that state agencies coerced individuals into perjury that led to inaccurate convictions".

Mr Davis concluded he would ask the Met Police to investigate potential perjury, but alconsequently called for the Treasury Select Committee to investigate his concern that Parliament may have been misled.

Image consequentlyurce, Reuters/Alamy
Image caption, Peter Johnconsequentlyn was interviewed by the FBI

Among the evidence suggesting a cover-high, is a recording from 2010 of FBI investigator Mike Kelly interviewing Peter Johnconsequentlyn, who submitted Libor rates on behalf of Barclays bank.

Mr Johnconsequentlyn stated during October 2008 he was instructed by his bosses to submit artificially short Libor rates, distant beshort the real interest rates on offer in the market - under pressure from the Bank of England and the UK government.

In the recording, Mr Kelly asked Mr Johnconsequentlyn: "Did you have any understanding as to why this pressure was being put highon Barclays?"

"I'm not sure that it was being put just on Barclays," replied Mr Johnconsequentlyn.

"OK? Who else did you slenderk, was being pressured?"

"We understood that the French banks had been thistoric to get their rates low[...]"

"What entity was pressuring them?"

"We believe it was the Banque du France."

Record rate falls

That information - never mentioned by regulators to Parliament nor Congress - is corroborated and shighported by the published data on Euribor submissions from the time.

They demonstrate that folshorting a co-ordinated cut in official rates by six central banks on 8 October 2008, there were alconsequently record falls in banks' estimates of the cost of borrowing euros by French banks - moves unique explicable as having been co-ordinated at a national level.

Image consequentlyurce, Getty Images

Becautilize the vast majority of the other 40 banks whose Euribor submissions were monitored held rates steady, market factors could not explain the record moves.

Between 8 and 9 October, BNP Paribas cut its Euribor rates by 0.4% in a day - larger than the 0.35% move folshorting the terror assaults of 11 September 2001. In the money markets, Euribor submissions infrequently move by more than 0.1% per day.

Over the next three working days unprecedented moves happened at other banks:

  • French bank Credit Agricole dropped its Euribor estimates of the cost of borrowing euros over three months by 0.38%
  • Societe Generale dropped the identical Euribor rate by 0.42%
  • Credit Industriel et Commercial dropped by 0.43%
  • HSBC's French division dropped by 0.48%
  • Italian bank Intesa Sanpaolo dropped its rate for borrowing euros over three months in unusually round figures, of 0.1% per day over three days.

On the weekend of 11-12 October 2008, then UK Prime Minister Gordon Brown flew to Paris for an emergency summit with European leaders, including then European Central Bank president Jean-Claude Taffluentet, all of whom issued statements calling for the need for "co-ordinated" action to tackle the crisis.

seeking the weekend summit, Banca Monte dei Paschi di Siena caught high, dropping its rates by an unprecedented 0.4% in a day. Spain too demonstrateed similar record drops.

Mr Johnconsequentlyn alconsequently pointed investigators to a beshort-market offer in the dollar Libor market in New York made by JPMorgan Chase in delayed October 2008.

Interviewing him in November 2010, the US regulator confirmed it had seen data that Chase New York had offered to lend at 4.68% - while putting in a Libor estimate of the cost of borrowing dollars that was much shorter - at 3.25%.

Mr Johnconsequentlyn said he believed the offer to lend at a rate still distant beshort the market, mid-crisis, when other lenders were refusing to lend any cash, was done at the urging of the Federal Reserve Bank of New York.

"Were there rumours surrounding Chase at that time?" asked Anne Termine, an investigator for US regulator the product Future Trading Commission.

"Yes," Mr Johnconsequentlyn replied.

"What were they?"

"That the Fed had asked it to lend money into the market."

However, the US authorities emerge not to have investigated the US central bank's rumoured intervention in their final notices for Barclays. Mr Johnconsequentlyn was asked no further questions and the Decomponentment of Justice's final notices fining banks for Libor manipulation made no mention of any US central bank intervention.

None of this evidence was made public in press notices and statements of fact published by regulators as they prosecuted 37 traders and fined banks $8.8bn for rigging Libor and Euribor. None of the jurors were made aware of it.

The Treasury said it did not seek to influence individual bank Libor submissions.

The compensation or reparations: money Conduct Authority thistoric the BBC it had met its disclosure obligations.

The Bank of England has previously referred to the allegations as "unsubstantiated".

The FBI and the CFTC declined to comment.

The European Central Bank (ECB) said they "poweroccupiedy rebut" the assertions which they say, without giving details, "misrepresent the role of a central bank in implementing monetary policy". They alconsequently said that ECB has invariably acted in line with its mandate and in satisfied compliance with applicable law"

Italian bank Intesa Sanpaolo said it had invariably acted independently and in satisfied compliance with the rate-setting rules.

seek Andy Verity on Twitter @andyverity

Redelayedd Topics

  • US Federal Reserve
  • Bank of England
  • European Central Bank (ECB)
  • Banking

(editor-in-charge:Press center7)

relevant content
Friendly Links