The Bank of England was dragged into the interest rate rigging scandal last night after an email was released suggesting it may have encouraged banks to doctor their borrowing costs during the financial crisis.
The email – an account of a conversation between the chief executive of Barclays, Bob Diamond, and the Deputy Governor of the Bank of England, Paul Tucker – appears to show Barclays was under the impression that manipulating rates was being sanctioned at the highest level.
The email was released by Barclays ahead of today's showdown between Mr Diamond and the Treasury Select Committee. Mr Diamond is certain to be asked what advice he received from the Bank of England on the reporting of Barclays' Libor rates, and is expected to make a series of explosive revelations. Any suggestion that the manipulation was authorised by Mr Tucker, the Permanent Secretary at the Treasury Sir Nicholas Macpherson or government ministers would increase pressure for a full public inquiry. The email came at the end of a day in which it emerged that Mr Diamond could be in line for a payment of up to £30m after announcing his immediate departure and that his resignation was triggered by a call from the Governor of the Bank of England Sir Mervyn King to Barclays' chairman, Sir Marcus Agius.
But it was the release of an internal Barclays email which could prove the most significant development. The email, dated 30 October 2008, was from Mr Diamond to John Varley, Barclays' chief executive, and copied in to Jerry del Missier, then co-head of the investment bank.
In it he details a phone conversation with Mr Tucker who was concerned at Barclays' high reported Libor borrowing costs. Mr Diamond said Mr Tucker told him he had received calls "from a number of senior figures within Whitehall" to question "why Barclays was always toward the top end of the Libor pricing". Mr Diamond said the Treasury should be told it was because other banks were under-reporting their own borrowing costs. He said the response was, "Oh, that would be worse".
In the most damaging section of the email, Mr Diamond says he was told the calls from the Treasury were "senior", before appearing to give a strong hint that Barclays should also under-report its borrowing rates. He said Mr Tucker told him "it did not always need to be the case that we appeared as high as we have recently."
In its submission to the select committee, Barclays claimed that was not what Mr Diamond meant by the email. Barclays said: "Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However, Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep Libor so high."