Parliament has been asked to investigate “damning evidence” suggesting it may have been misled by the Bank of England over interest rate manipulation.
Senior Conservative backbencher David Davis said new evidence cast doubt on his former deputy governor’s testimony to Parliament.
In a debate in the House of Commons, he called for a new parliamentary investigation into the scandal.
He was backed by former Labor Shadow Chancellor John McDonnell.
Mr Davis cited statements by former Bank of England Deputy Governor Paul Tucker, who told the Treasury Department in July 2012 that he had only come to learn of the rate rigging “in the last few weeks”.
“Yet there appears to be overwhelming evidence that this was not true, including meetings, phone calls and affidavits to US authorities,” Davis said.
“It has also been claimed that there have been no instructions from the Bank of England to change Libor claims,” he added. “But the evidence uncovered by Mr. Verity suggests that this too is untrue.”
Evidence cited by Mr. Davis indicates that Mr. Tucker was aware of the most serious form of manipulation known as “lowballing” as early as August 2007.
Banks have been fined billions of dollars by regulators in the US and UK for this practice.
During the 2007-2009 financial crisis, banks routinely understated – “lowballing” – the interest rates they paid for lending cash.
They did so when they published daily estimates of their borrowing costs to set the Libor, the reference rate that measures the cost of borrowing cash between banks.
What the FTSE 100 is to stock prices, Libor is to interest rates – an index that reflects the cost of borrowing cash. For almost 35 years, every morning at 11 a.m., 16 banks have been answering the question: At what interest rate could you borrow money?
They submit their answers (e.g. RBS estimates 3.14%, Lloyds 3.13% etc.) and an average is taken to arrive at Libor, short for London Interbank Offered Rate. The process for setting Euribor is similar, but more banks are involved.
The evidence against the traders jailed for “rate manipulation” consisted solely of requests they made to colleagues to adjust these estimated interest rates up or down, typically by a hundredth of a percentage point (known in money markets as a “basis point”). ).
The hope was to slightly shift the Libor average in the right direction, which would benefit the bank’s businesses that rose or fell on Libor.
In the other form of interest rate manipulation, known as “lowballing,” banks pretend they can borrow cash much cheaper than they actually can. It’s on a much larger scale.
The evidence unearthed during research for a book I wrote casts doubt on the prosecution of 37 trades for “manipulation” of Libor and Euribor, the equivalent of Libor to the euro.
It includes a chain of emails reporting a meeting on August 14, 2007, at which Mr Tucker is said to have vowed to senior bank executives to remain silent while they discussed banks’ Libor estimates of the cost of borrowing be low.
In a February 2011 deposition before the US Department of Justice, Barclays executive Jerry del Missier said Paul Tucker told him on September 1, 2007 that Barclays should lower its Libor rates.
When former Bank of England Deputy Governor Paul Tucker was interviewed by the Treasury’s Committee of MPs on July 9, 2012, he was asked when lowballing first came up.
“I mean, I wasn’t aware of the lowballing allegations until…the last few weeks,” he said.
Mr Tucker was asked by the BBC to comment but has repeatedly declined.
Speaking to Parliament, David Davis also said there had been “a series of miscarriages of justice in which 37 traders were prosecuted, 19 convicted and nine imprisoned simply for doing their jobs”.
He called on the Treasury Department’s special committee to investigate whether they had been misled.
Former Labor Shadow Chancellor John McDonnell said: “From the evidence we have seen it is quite clear that the House of Representatives has been misled.”
He added: “These were egregious miscarriages of justice” and called on the Treasury Department’s special committee to look into it.
Speaking on behalf of the government, Junior Treasury Secretary Andrew Griffith said the issue at stake was whether state authorities were implicated in the repression and whether the Treasury Department’s special committee had been misled. He said: “I like [Mr Davis] I look forward to the response from the Treasury Select Committee Chair.”
Mr Davis also quoted former Lord Chancellor Lord Mackay of Clashfern, who said there were “serious questions” “worthy of the Supreme Court” about the law being used to convict traders, nine of them of a much lesser form of crimes imprisoned “interest manipulation” which is now a criminal offense in no country other than the UK.
Convictions of dealers by US courts were overturned after a US appeals court ruled last year that prosecutors could not prove the former dealers had provided or obtained false or misleading information.
The Bank of England was repeatedly questioned by the BBC about this evidence and declined to comment, saying any claims about its role were “unfounded”.
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