Fed knew about Libor rigging in 2008 - Telegraph

Fed knew about Libor rigging in 2008 - Telegraph

"

The US Federal Reserve knew about Libor rigging three years before the
financial scandal exploded but did not take any firm action, documents have
revealed.

According to newly published transcripts of the central bank’s meetings in the
run-up to and immediate aftermath of the collapse of Lehman Brothers, a
senior Fed official first flagged the issue at a policy meeting in April
2008.

William Dudley expressed fears that banks were being dishonest in the way they
were calculating the London interbank offered rate – a global benchmark
interest rate used as the basis for trillions of pounds of loans and
financial contracts.

“There is considerable evidence that the official Libor fixing understates the
rates paid by many banks for funding,” he said.

He added that a newspaper report, which lifted the lid on some degree of
manipulation, appeared to have triggered “an outbreak of veracity among at
least some” bankers, who started reporting accurately the interest rates
they offer each other, which are used to calculate Libor.


Three years after his remarks, it emerged that traders at more than a dozen
banks, including Lloyds, Royal Bank of Scotland and Barclays, had routinely
been trying to fix the official Libor rate in order to boost their own
bonuses and profits.




The scandal impacted the finances of tens of millions of ordinary households
and businesses, and dealt a devastating blow to the banking industry.
Financial institutions have paid more than $5bn (£3bn) in fines to settle
the matter with regulators in the US, UK and the European Union. A dozen
individuals have been criminally charged, and many others lost their jobs –
including Barclays’ chief executive Bob Diamond and chairman Marcus Agius,
who both resigned over the issue.




The transcript of the Fed’s April 2008 meeting raises questions about why the
central bank did not move to properly tackle the scandal. There was no
official regulator for Libor at the time, and officials at the US Federal
Reserve tried to blame British authorities for allowing the benchmark
interest rate to get out of control in the first place."