Libor Bank of England
“WE THOUGHT this was a malfunctioning market not a dishonest market, ” explained Paul Tucker, deputy governor of the Bank of England, towards the end of his much-awaited testimony to a parliamentary committee. Mr Tucker was appearing at his own request to give his version of a telephone conversation in October 2008 with Bob Diamond, the former chief executive of Barclays, who resigned on July 3rd, after the bank had agreed to pay £290m in fines for attempting to manipulate LIBOR, a benchmark interest rate. A note written by Mr Diamond at the time seemed to suggest that Mr Tucker, at the behest of senior figures in Whitehall, had instructed Barclays to doctor its LIBOR submissions, to assuage fears over its finances:
Mr Tucker stated the level of the calls he was receiving from Whitehall were “senior” and that while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.
Asked whether he refuted the note’s suggestion, Mr Tucker responded: “absolutely”. Did government ministers lean on him to give such an instruction? “Absolutely not, ” he said, adding that the Whitehall figures with whom he had conversations during the crisis were senior civil servants, not government ministers. The denials undercut the claim by George Osborne, chancellor of the exchequer, that ministers of the previous Labour government, including Ed Balls, now the shadow chancellor, were directly implicated in the LIBOR scandal.
Mr Tucker said he had merely advised Mr Diamond to be careful that Barclay’s money-market desk was not inadvertently sending up distress signals about the bank’s health by paying over the odds for short-term liquidity. The phone call took place in highly stressed circumstances, shortly after two other British banks had received capital injections from the government to prop them up. “Barclays was the next in line” of the dominoes that might topple, he said.
If Mr Tucker did not bless the doctoring of LIBOR rates, should he have known it was going on? According to his memo, Mr Diamond explained to Mr Tucker that “not all banks were providing [LIBOR] quotes at the level that represented real transactions.” Mr Tucker told the committee that he took this to mean that other banks, which had submitted LIBOR quotes, but did not need to raise cash, had under-estimated their likely borrowing costs. He did not interpret Mr Diamond’s remarks as blowing the whistle on the misreporting of LIBOR, Mr Tucker said—and that he wasn’t aware of any allegations that banks were deliberately “low-balling” LIBOR rates until very recently.
There was little in Mr Tucker’s testimony to suggest that he did anything wrong or was negligent. But the link with the LIBOR crisis might still hurt his hopes of succeeding Sir Mervyn King as the Bank of England’s governor next year. Sir Mervyn has been criticised that he remained aloof from finance folk in the early weeks of the crisis and so was slow to respond. It would be harsh, then, if Mr Tucker’s chances to get the top job are hurt by his efforts to keep in touch.