British official defends role of central bank in Barclays scandal

Last Updated: Mon, Jul 09, 2012 19:51 hrs

Political leaders focused their attention on what senior officials knew about the Barclays’ rate manipulation scandal after Paul Tucker, deputy governor at the Bank of England, testified to a British parliamentary committee on Monday.

Tucker, who is a front-runner to replace Mervyn A King as the head of Britain’s central bank next year, defended the Bank of England’s role in the rate manipulation scandal.

He said senior officials had maintained regular contact with senior officials at Barclays after the collapse of Lehman Brothers in 2008 because of fears that the British bank might need to be bailed out. “These were completely extraordinary times,” Tucker said. “Two banks had been taken under the government’s wing, so Barclays was next in line.”

His evidence contrasts with that of Robert E Diamond Jr, the former chief executive of Barclays, who told the same committee last week that senior officials had been repeatedly told about efforts to influence key interest rates, but said regulators had not moved to stop it.

The British bank agreed in late June to pay around $450 million to settle accusations from United States and British authorities that its traders and senior executives had manipulated the London interbank offered rate, or Libor. The rate is used as a benchmark for trillions of dollars of corporate loans, home mortgages and derivatives around the world.

Diamond and Jerry del Missier, a top deputy, both resigned last week in response to the Libor scandal. Barclays’ chairman, Marcus Agius, will also step down from his post, and will testify to the parliamentary committee on Tuesday.

The European Commission waded into the fray on Monday after Michel Barnier, the financial services commissioner, said he would propose amendments to draft market abuse legislation that would outlaw the manipulation of Libor and other benchmark rates.

Amid concerns that senior officials may have directed Barclays to alter its Libor submissions, British politicians on Monday focused their questioning on a conversation Tucker had with Diamond at the end of October 2008.

Last week, Diamond told the same parliamentary committee that senior British officials had raised concerns that the bank’s Libor submissions were higher than those of rivals.

In his testimony, Tucker said the worries from authorities were linked to fears that the financial markets might perceive Barclays to be at risk if their Libor submissions continued to be higher than those of other international banks.

“I wanted to be sure that senior management at Barclays was overseeing the day-to-day financing requirements,” he told the parliamentary committee.

E-mails released by the Bank of England before Tucker’s testimony revealed that senior British officials were worried about banks’ access to the financial markets in the aftermath of the collapse of Lehman Brothers in 2008. “We are [very] concerned that US rates are tumbling but we remain stuck,” Jeremy Heywood, a senior British civil servant, told Tucker in an e-mail on Oct. 22, 2008.

Tucker also was in almost daily contact with senior Barclays executives during the final weeks of October, 2008, according to the documents.

He contacted Diamond on October 25, 2008, saying he was “struck” that Barclays was paying a high interest rate on its loans, even though they were backed by British government guarantees. Tucker also asked to meet the former Barclays chief in person to discuss the funding issues.

A few days later, Diamond sent a separate e-mail to the Bank of England deputy governor with details of a euro 3 billion ($3.6 billion) bond that Barclays had issued, in an effort to quell officials’ fears that the British bank was having financing problems.

“Investor confidence is slowly (very slowly) returning,” Diamond wrote on October 30, 2008.

Tucker, 54, has been with the Bank of England for more than 30 years. After working briefly at the British bank Baring Brothers and with the Hong Kong government in the 1980s, Tucker rose inside the Bank of England to become the central bank’s deputy governor in charge of financial stability in 2009.

He also is a leading figure in global efforts to overhaul financial regulation, holding senior positions at both the Financial Stability Board and the Global Economy Meeting, whose memberships comprise officials from the world’s leading central banks.

Tucker is known for his practical knowledge of the financial markets as well as for a track record of backing extra support to finance British banks during the recent economic crisis, according to several of his current and former colleagues, who spoke on the condition of anonymity because of the importance of his testimony on Monday.

Yet the Libor scandal has hurt Tucker’s reputation. Individuals connected to the Bank of England have voiced concerns that he missed signs that rate manipulation was happening.

In November 2007, for example, Tucker chaired a committee meeting at the central bank where some officials raised questions about banks’ Libor submissions.

“Intellectually, he’s not up to the job,” said David Blanchflower, a British economist who sat on the Bank of England’s monetary policy committee with Tucker from 2006 to 2009. “Every single call since 2007, he has got wrong.”

British politicians have begun a review of how Libor is set. The British Bankers’ Association, a trade group, currently oversees the rate.

American and international regulators continue to investigate a number of global banks, including Citigroup, JPMorgan Chase and Deutsche Bank, over their involvement in the altering of interest rates.

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