America wakes up to the Libor scandal

US lawyers and politicians are belatedly stirring, says Stephen Foley in New York

When the Libor rate-rigging scandal erupted two weeks ago, with the admissions by Barclays and the £290m fine on the British bank, boy did it erupt – in Britain.

Despite the size of the settlement and crowing by the Commodities Futures Trading Commission, the regulator here, that it had bounced sleepy UK authorities into action, Barclays' travails looked like a quaint foreign story. On this side of the Atlantic, it was not seized upon by bank-bashers on Capitol Hill, or partisan point-scorers, or even the media especially.

One commentator, arguing that it was the British uproar, rather than the American shrug, which was the correct response, wailed: "What will it take to get the same response here?"

The answer, it seems, might only be time. If there were any bank chief executives who breathed a sigh of relief that the ferocious politicians of the US and the litigious players in the financial markets here seemed becalmed, they are rethinking that complacency.

In the last 48 hours, the Libor scandal has taken on an American political dimension, with the publication of correspondence between the current US Treasury Secretary, Tim Geithner, and the Bank of England's Governor, Mervyn King, and with a thunderous letter signed by senior Democrats demanding a thorough investigation and prosecutions. It is an odds-on bet that bank bosses will be called to Capitol Hill to explain the shenanigans of traders who tried to manipulate Libor for personal gain and to rake over the awful months of the credit crisis, when Barclays – and probably others – lied about their borrowing rates for fear of triggering a panic.

Barclays' shares are down about 16 per cent since its settlement, while the American banks who are part of the Libor-setting process – JPMorgan Chase, Citigroup and Bank of America – are broadly flat.

Glenn Schorr, a banking analyst at Nomura, reckons that could change. "We're not sure that this potentially large problem is fully priced in," he told his clients.

Barney Frank, the No 2 member of the powerful House Financial Services Committee is among the politicians calling for bank executives to be hauled before Congress. The Obama administration received a letter on Thursday signed by a dozen Senators, five of whom sit on the Senate Banking Committee, demanding a full account of what the authorities knew and what the manipulation of Libor might have meant for ordinary Americans' mortgage rates, credit card bills and small business financing.

"This scandal calls into further question the integrity of many Wall Street banks and whether our prosecutors and regulators are up to the task of regulating them," they wrote. "Restoring integrity to our financial system is critical to restoring confidence in our economy.... Just like the banks and executives they oversee, regulators who were involved should be held to account for any failures to stop wrongdoing."

The New York Federal Reserve yesterday released details of its correspondence with the UK authorities over Libor during the credit crisis.

Mr Geithner, now the most senior member of the Obama administration's economics team, but at that time the chairman of the New York Fed, raised concerns about the "accidental or deliberate" manipulation of Libor in 2008, it was revealed. The Fed was so concerned about the apparent faking of Libor in April 2008 that within weeks it had drawn up proposals on how to restore its integrity and forwarded them to Sir Mervyn and Mr Tucker.

The Bank of England passed them on to the British Bankers Association, which oversees the calculation of Libor rates from an average of 16 banks' public submissions. According to the New York Fed, its officials understood that, with interbank lending getting more scarce as the crisis worsened, the borrowing rates being submitted to the BBA were "increasingly hypothetical" and that Barclays had become alarmed at market gossip which pointed to its high Libor submissions as evidence that the bank was in trouble.

In April 2008, one Barclays employee admitted to a Fed official: "We know we're not posting an honest Libor.... We just fit in with the rest of the crowd."

Suggestions that Libor was being manipulated downwards abounded in 2008, and lawsuits from market participants who believed they lost out as a result have been working their way through US courts for more than two years.

These received a boost from the emails published as part of the Barclays settlement. One lead plaintiff, the city of Baltimore, believed it lost out because derivatives deals it had in 2008 were related to the Libor rate. Dozens of other municipalities are also involved.

The success of these suits will depend on whether banks are found to have been successful in their attempts to manipulate Libor and if the fake rate did feed through to specific gains or losses on derivatives – but even defending them could cost tens of millions of dollars in legal fees.

Barclays' former chief executive Bob Diamond, before he was forced to resign, raged privately at having become the public face of the Libor scandal, despite his belief that other banks were faking Libor rates earlier in the crisis, and despite being the first to co-operate in the investigation.

By the time the scandal is played out, on a transatlantic stage, his may not be the only red face.

Suggested Topics
News
Emma Watson has become the latest target of the 4Chan nude hacking scandal
peopleThreats follows actress' speech on feminism and equality at the UN
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
PROMOTED VIDEO
Sport
David Moyes and Louis van Gaal
football
Life and Style
food + drink
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
tv
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Extras
indybest
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits