While he was president of the Federal Reserve Bank of New York, Timothy Geithner pressed British regulators to reform the way it calculated a critical global benchmark called the London interbank offered rate, or Libor, according to a June 1, 2008, e-mail obtained by The Washington Post.
Writing to the head of the Bank of England, among others, Geithner made six recommendations, which included eliminating incentives that could encourage banks to manipulate the rate and to establish a “credible reporting procedure.”
“We would welcome a chance to discuss these and would be grateful if you would give us some sense of what changes are possible,” Geithner wrote.
It’s unclear what other steps Geithner took and whether his efforts stopped any wrongdoing by banks. Last month, London-based Barclays, one of Europe’s largest banks, admitted it schemed to manipulate Libor during the financial crisis — and its chief executive has asserted that regulators knew about its activities but didn’t do much to stop them. The scandal has led to the resignation of Barclays’ senior executives.
With the Libor scandal threatening to migrate from London to Washington, pressure is growing on Geithner and other regulators to explain what they knew and when.
On Thursday, several key Democratic senators called on the Justice Department to hold accountable bankers and regulators who failed to “stop wrongdoing that they knew, or should have known about.”
In an effort to address some of these questions, the Federal Reserve Bank of New York, which Geithner led from 2003 until he joined the Obama administration as Treasury secretary, is set to release a trove of documents Friday morning detailing its response to concerns raised as early as 2007 about Libor, which helps set the standard for $10 trillion worth of corporate bonds, credit cards, mortgages and other loans around the world.
Andrea Priest, a spokesperson for the New York Fed, said the documents to be released Friday “will show that the New York Fed took prompt action four years ago to highlight problems with Libor and press for reform.”
The New York Fed played a marginal role in driving the inquiry, according to a source familiar with the U.S. and British investigation. During years of investigation briefings on Libor, the New York Fed’s name rarely, if ever, came up, said the source, who spoke on the condition of anonymity because the investigation is ongoing.
In the byzantine world of banking regulation, the New York Fed is perhaps the most powerful player. Yet during the time that allegations about Libor were reported, it was also in the middle of handling a crisis in the financial sector.
The investment bank Bear Stearns collapsed just weeks before Geithner had a meeting April 28, 2008, titled “Fixing LIBOR,” according to his schedule. Events continued to go downhill that summer and fall.
Nearly 20 of the world’s largest banks — including Citigroup, Bank of America and JPMorgan Chase — help set Libor rates.
