Interest Rate ‘Rigging’ Evidence ‘Covered Up’ by banks
Evidence suggests that regulators in the UK and US were aware of a state-led effort to manipulate interest rates during the 2008 financial crisis but chose to conceal it, according to recently surfaced documents. The evidence indicates that under pressure from central banks, lenders significantly lowered their estimates of interest rates. However, this evidence was not presented to juries during the trials of bankers charged with smaller-scale interest rate manipulation. Regulators have either declined to comment or refuted these claims, stating that they followed disclosure rules. Previous indications of Bank of England and UK government involvement in interest rate manipulation have emerged, but this newly revealed evidence suggests a broader international effort involving central banks worldwide to lower key interest rates in October 2008.
The evidence suggests that central banks such as the Bank of England, Banque de France, European Central Bank, Banca d’Italia, Banco de Espana, and the Federal Reserve Bank of New York intervened extensively in the setting of Libor and Euribor during October 2008. These benchmark interest rates have a significant impact on the cost of mortgages and other loans, as they reflect how much banks charge to borrow money from each other. During the height of the financial crisis when bank lending was nearly frozen, central banks publicly called for calm while privately taking actions to artificially restore stability. However, these actions were later deemed unlawful in the UK.
Although investigating agencies, including the FBI and the UK financial regulator (then called the Financial Services Authority), were informed of these activities in November 2010, this information was kept secret from Parliament, Congress, and the public. The former chairman of the UK Treasury Committee, Andrew Tyrie, believes that Parliament was misled and calls for stronger information-gathering powers and sanctions against those who provide incomplete information.
Evidence of a cover-up includes a 2010 recording of an interview with Barclays cash trader Peter Johnson, who admitted that he was instructed by his superiors to submit artificially low Libor rates under pressure from the Bank of England and the UK government. Further evidence indicates the involvement of the UK government, including 10 Downing Street, in pressuring banks to manipulate Libor. Nineteen traders have been convicted and nine jailed based on court rulings that prohibit any influence on Libor beyond the interest rates available in the money markets for borrowing and lending cash.
Senior Conservative MP David Davis expressed concern that the Treasury Select Committee may have been misled by state agencies regarding their knowledge and involvement in setting false rates. He suggests that there may be a case for investigating potential perjury and calls for the committee to look into whether Parliament was misled.
The evidence, including suppressed recordings and published data, indicates coordinated interventions by central banks to manipulate Libor and Euribor rates in October 2008. However, this evidence was not presented during the trials of traders and brokers, and regulators’ press notices and statements of fact did not mention this information. The UK Treasury denies seeking to influence individual bank Libor submissions, while the Financial Conduct Authority claims to have fulfilled its disclosure obligations. The Bank of England refers to the allegations as unsubstantiated, and the FBI, the Commodity Future Trading Commission, and the European Central Bank declined to comment. Italian bank Intesa Sanpaolo stated that it acted independently and in compliance with rate-setting rules.