Congress Presses New York Fed for More Details on Rate-Rigging Scandal
By BEN PROTESS
Congress widened its inquiry into the interest-rate manipulation
scandal, pressing the Federal Reserve Bank of New York to further
disclose its knowledge of the multiyear scheme.
On Monday, the oversight panel of the House Financial Services
Committee sent a letter to the New York Fed seeking volumes of records
about the London interbank offer rate, or Libor, a measure of how much
banks charge each other for loans. Lawmakers are demanding that the
New York Fed detail its communications with employees from all 16
banks that help set the interest rate, which affects the trillions of
dollars in mortgages and other loans.
The letter follows a Congressional request that the New York Fed turn
over transcripts from phone calls its officials had with just one
bank: Barclays.
In June, the British bank became the first to settle accusations that
it tried to manipulate Libor for its own benefit. Authorities around
the globe are investigating more than 10 other big banks for their
role in rigging the interest rate.
The initial transcripts released this month showed that the New York
Fed learned about wrongdoing at Barclays in 2008. That revelation
called into question whether the New York Fed pursued the matter
fully.
"We know that we're not posting um, an honest" rate, a Barclays
employee told a New York Fed official in April 2008, according to
transcripts. At the time, because high borrowing costs were a sign of
poor health, banks were submitting artificially low rates to project a
better image of their finances.
The transcript, among other documents, only fed the firestorm over
what regulators might have known about the rate-rigging scandal. The
New York Fed and other authorities are under scrutiny for failing to
thwart the illegal activities that, at Barclays, continued to 2009.
"There are still many outstanding questions that merit further
investigation," Representative Randy Neugebauer, the chairman of the
House Financial Services Subcommittee on Oversight and Investigations,
wrote in the letter on Monday.
The latest request is likely to produce reams of memos and e-mails.
The subcommittee is demanding "all communications and documents"
between the New York Fed and the 16 banks over a five-year span, from
2007 to 2012. The New York Fed, which has until Sept. 1 to provide the
documents, must also turn over its internal documents and any
correspondence with authorities in the United States and abroad.
The New York Fed has defended its actions, saying it briefed
regulators about the broad problems with Libor.
But lawmakers have questioned why the New York Fed, despite its
awareness of misconduct at Barclays, did not refer the illegal acts to
regulators or the Justice Department. Instead, the New York Fed
circulated in June 2008 a plan to fix Libor, producing a six-point
plan to revamp the rate-setting process.
"As you know, the role of government is to ensure that our markets are
run with the highest standards of honesty, integrity and
transparency," Mr. Neugebauer wrote. "Therefore, any admission of
market manipulation -- regardless of the degree -- should be swiftly
and vigorously investigated."
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