David Cameron today condemned the “spivvy and probably illegal” activity of banks fixing interest rates ahead of Bob Diamond’s much anticipated evidence to Parliament this afternoon.
Mr Cameron said it was "outrageous" that homeowners may have been forced to pay higher interest rates as a result of efforts to rig the benchmark Libor and Euribor rates.
But he refused to back Labour's calls for a judge-led inquiry into the culture of the City saying he believed the matter was better investigated by Parliament. He added that this would be “swift and decisive”.
However the Labour leader Ed Miliband said Mr Cameron's reluctance to set up an investigation along the lines of the Leveson Inquiry showed he did not understand the scale of public concern over the banking scandal.
The clash at Prime Ministers Questions came ahead of Mr Diamond’s evidence to the Treasury Select Committee this afternoon. He is expected to be swiftly followed by the Deputy Governor of the Bank of England, Paul Tucker. This afternoon the Bank said Mr Tucker was keen to give evidence "as soon as possible".
Both men are expected to quizzed about an email released by Barclays yesterday suggesting the Bank of England may have encouraged banks to doctor their borrowing costs during the financial crisis.
The email – an account of a conversation between Mr Diamond and Mr Tucker – appears to show Barclays was under the impression that manipulating rates was being sanctioned at the highest level. It could also implicate senior Treasury officials.
Any suggestion that the manipulation was authorised by Mr Tucker, the Permanent Secretary at the Treasury Sir Nicholas Macpherson or government ministers would be highly damaging and increase pressure for a full public inquiry.
The email, dated 30 October 2008, was from Mr Diamond, then head of Barclays Capital, 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 the Deputy Governor 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 he told him that 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."
But in its submission to the select committee Barclays claimed that was not what Mr Diamond meant by the email. "Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier," 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 Libors so high and he therefore passed down a direction to that effect to the submitters."
In a hastily convened conference call yesterday afternoon Barclays' chairman Marcus Agius refused to provide any explanation for the apparent contradictions within the bank's submission.
"There is a hearing of the Treasury Select Committee when this will be addressed," he said.
Despite repeated questions Mr Agius refused to explain further.
Ahead of the Committee hearing, Labour's former City minister Lord Myners said he did not think any of his Treasury colleagues, under the leadership of Alistair Darling, discussed the rate with the Bank of England.
Conservative MPs highlighted the reference to pressure from Whitehall, suggesting that former Labour ministers had to explain their involvement.
But Lord Myners said: “We were not interested in the Libor-setting process, let alone the submissions by individual banks. I don't think it was on our agenda. I don't remember it being discussed at all.”
Alistair Darling, who was chancellor from 2007 to 2010, said yesterday he did not believe anyone at the Treasury would have urged such improper intervention by the BoE.
However, he appeared to stop short of expressing confidence that no one in government would have done so.
“Firstly, I think it is important that this committee which is examining Bob Diamond tomorrow also gets Paul Tucker in front of it at the earliest possible opportunity. Because this is Bob Diamond's account,” Mr Darling said.
Shadow chancellor Ed Balls, a close ally of Gordon Brown and a Treasury minister in 2006/07, insisted he knew nothing about the issue.
"I have absolutely no idea, that's why I want, as Ed Miliband does, a full open judicial inquiry at arm's-length forensically to ask these questions to see whether anybody knew what was going on," he said.