Interest rate ‘rigging’ evidence ‘covered up’ by banks

Regulators in the UK and US were told government action to “fix interest rates” was taken during the 2008 financial crisis, but they hushed it up, evidence shows.

Documents suggest lenders have significantly lowered their rate estimates amid pressure from central banks.

At the time bankers were jailed on a smaller scale for “rate manipulation,” no evidence was presented to the jury.

Regulators said they complied with disclosure rules, declined to comment or, in one case, refuted the claims.

Earlier there was evidence that the Bank of England and the UK government were involved in manipulating interest rates. But the evidence that this was part of a broader international initiative not just by Britain but by central banks across the western world to lower interest rates in October 2008 has never been made public before.

The evidence suggests that in October 2008, central banks including the Bank of England, Banque de France, the European Central Bank, Banca d’Italia, Banco de Espana and the Federal Reserve Bank of New York were investing heavily in the situation have intervened by Libor and Euribor.

At the height of the financial crisis in 2008, when bank lending had almost come to a standstill, central banks around the world called for calm. But my investigation uncovers evidence that they used levers behind the scenes to artificially restore calm – actions later found to be unlawful in the UK.

These metrics relate to the Libor and Euribor benchmark interest rates, which measure how much it costs banks to lend each other money. As such, they have a major impact on the cost of mortgages and other borrowing. The more confidence investors had in the borrowing bank, the lower the interest rate. The higher the interest rate, the more doubts the market had about the viability of that bank.

In October 2008 there was an international initiative involving the central banks of the UK, US and the Eurozone to lower the Libor and restore calm to the market at a time when bank lending was nearing peak had come to a standstill.

In November 2010, investigative authorities from the US Federal Bureau of Investigation (FBI) to the British financial regulator were informed directly about it – but they have kept it secret from Parliament, Congress and the public ever since.

Andrew Tyrie, who chaired the UK Treasury’s Committee of MPs on the Libor inquiry in 2012, told the BBC he believed Parliament had “appeared to have been misled”.

“The evidence Mr Verity has unearthed strongly suggests that the full truth was not told in the Committee’s investigation into the Libor scandal.

“The public relies on Parliament to bring out the truth. This case shows why Parliament should strengthen its intelligence-gathering powers with more effective sanctions against those who don’t provide the full picture. Parliament appears to have been misled and if that is the case, it should not rest.”

I discovered excerpts from a transcript of an interview given by Barclays cash trader Peter Johnson while researching a book I was writing about the classified history of the interest rate rigging scandal.

The interview was given on November 19, 2010 to the US Department of Justice, the FBI, other US regulators and the UK financial services regulator, then the Financial Services Authority (FSA).

While 37 traders and brokers were prosecuted by the US Department of Justice and the UK’s Serious Fraud Office, juries in nine criminal trials for much smaller rate manipulations that took place in London and New York between 2015 and 2019 never showed this evidence.

Supported and supplemented by published data, the suppressed evidence suggests that in October 2008 central banks intervened on a large scale in setting Libor and Euribor.

Further suppressed evidence suggests that the UK government, including 10 Downing Street, was also involved in pressuring banks to ‘manipulate’ the Libor, as defined by the criminal courts – meaning they attempted to block movements in the Libor interest rate reference rate while “ignoring the proper basis for setting Libor”. “.

Nineteen traders were convicted and nine jailed because court rulings prohibited any influence on Libor other than the interest rates offered on the money markets at which a bank could borrow and lend cash.

If they allowed the determination to be influenced by other factors, such as a desire to avoid bad publicity or to support a bank’s market operations, they could be jailed for “rate manipulation.”

Senior Conservative MP David Davis said in Parliament: “I am very concerned that the Treasury Select Committee may have been misled by government agencies about the government’s knowledge and involvement in setting false interest rates. It’s a big and complex problem, and there are hundreds of them.” Pages of evidence.

Mr Davis said given the evidence he saw there was “reason to believe that state agencies have coerced perjuries on individuals that have led to false convictions”.

Mr Davis added he would ask the Met Police to investigate possible perjury but also called on the Treasury Select Committee to investigate its concerns that Parliament may have been misled.

Evidence suggesting a cover-up includes a 2010 recording in which FBI investigator Mike Kelly interviews Peter Johnson, who submitted Libor interest rates on behalf of Barclays Bank.

Mr Johnson said in October 2008 he had been ordered by his superiors to submit artificially low Libor rates, well below the real interest rates offered in the market – under pressure from the Bank of England and the UK government.

In the recording, Mr Kelly asked Mr Johnson: “Do you understand why this pressure has been put on Barclays?”

“I’m not sure it was just Barclays,” Mr Johnson replied.

“OK? Who else do you think was pressured?”

“We understood that French banks were being told to lower their interest rates[…]”

“What entity pressured her?”

“We believe it was the Banque du France.”

This information – which was not mentioned by the regulators to Parliament or Congress – is confirmed and supported by the published data on Euribor filings from that period.

They show that after a coordinated cut in key interest rates by six central banks on October 8, 2008, the cost estimated by banks of euro borrowing by French banks has also fallen by a record – steps that can only be explained by coordination at a national level .

With the vast majority of the other 40 banks whose Euribor data was monitored kept interest rates stable, market factors could not explain the record moves.

Between October 8th and 9th, BNP Paribas cut its Euribor rates by 0.4% in one day – more than the 0.35% move following the September 11, 2001 terrorist attacks. In money markets, Euribor submissions rarely fluctuate by more than 0.1% per day.

Over the next three working days, other banks saw unprecedented changes:

On the weekend of October 11-12, 2008, then-British Prime Minister Gordon Brown flew to Paris for an emergency summit with European leaders, including then-European Central Bank President Jean-Claude Trichet, on a “coordinated” approach to dealing with the crisis.

Following the weekend’s summit, Banca Monte dei Paschi di Siena caught up, cutting its interest rates by an unprecedented 0.4% in one day. Spain also saw similar record declines.

Mr. Johnson also alerted investigators to a below-market bid by JPMorgan Chase for the New York dollar-Libor market in late October 2008.

In an interview with him in November 2010, US regulators confirmed they had seen data that Chase had offered loans to New York at a rate of 4.68% – giving a Libor estimate of the cost of borrowing in dollars , which was much lower – at 3.25%.

Mr Johnson said he believed the offer to lend at a rate still well below the market rate came at the urging of the Federal Reserve Bank of New York in the midst of the crisis, when other lenders refused to lend cash may be.

“Were there rumors about Chase at the time?” asked Annetermine, an investigator for the US regulator’s Commodity Futures Trading Commission.

“Yes,” replied Mr. Johnson.

“What were you?”

“That the Fed asked them to lend money to the market.”

However, the US authorities do not appear to have investigated the alleged Federal Reserve intervention in their final communications to Barclays. Mr Johnson was asked no further questions and there has been no mention of Federal Reserve intervention in recent Justice Department rulings fining banks for Libor manipulation.

None of this evidence was released in press releases and factual claims released by regulators as they prosecuted 37 traders and fined banks $8.8 billion for manipulating Libor and Euribor. None of the jurors were informed of this.

The Treasury said it had not attempted to influence Libor filings by individual banks.

The Financial Conduct Authority told the BBC that it had complied with its disclosure obligations.

The Bank of England previously described the allegations as “unfounded”.

The FBI and CFTC declined to comment.

The European Central Bank (ECB) said it “strongly refutes” claims that, without giving details, it “misrepresents a central bank’s role in the implementation of monetary policy”. They also said that the ECB has always acted in accordance with its mandate and in full compliance with applicable law.

Italian bank Intesa Sanpaolo said it has always acted independently and in full compliance with tariff-setting rules.

Follow Andy Verity on Twitter @andyverity