Timothy F. Geithner in 2008 sent the Bank of Englandrecommendations for improving calculations of the London interbankoffered rate, now at the center of a scandal over allegations thebenchmark was manipulated.

Geithner, the U.S. Treasury secretary who was president of theFederal Reserve Bank of New York at the time, sent Bank of EnglandGovernor Mervyn King six recommendations. One was to “establish andpublish best practices for calculating and reporting rates,including procedures designed to prevent accidental or deliberatemisreporting,” according to a memo obtained by Bloomberg News.

Members of Congress are seeking information from U.S. regulatorsabout the scandal that prompted Barclays Plc Chief ExecutiveOfficer Robert Diamond to quit last week after the U.K.'ssecond-biggest lender was fined a record 290 million pounds ($448million) for attempting to rig interest rates. At least a dozenbanks are being investigated for manipulating Libor, the globalbenchmark for $360 trillion of securities.

King forwarded Geithner's recommendations to the then-marketsdirector at the Bank of England, Paul Tucker, who shared them withAngela Knight, according to a statement today by the U.K. centralbank. She was then the chief executive officer of the BritishBankers Association, the lobby group which coordinates Libor.

Geithner sent the recommendations in June 2008 after Kingdiscussed Libor issues with other central bankers at Basel. The BBAbegan a review of Libor the same month.

“The bank was aware of the forthcoming BBA consultation and,despite not having any regulatory responsibilities in this area,was concerned that it be as comprehensive as possible,” the Bank ofEngland said in a statement. “Both the bank and the Federal Reservewere assured by the BBA that it would take on board therecommendations, either through actions or through questions onwhich it would consult.”

The New York Fed today is set to release documents in responseto a request from Representative Randy Neugebauer, a TexasRepublican who serves on the House Financial Services Committee.Neugebauer sent a letter this week to New York Fed PresidentWilliam C. Dudley asking for transcripts of communications betweenthe regulator and Barclays relating to setting Libor rates fromAugust 2007 to November 2009.

Market Monitoring

“In the context of our market monitoring following the onset ofthe financial crisis in late 2007, involving thousands of calls ande-mails with market participants over a period of many months, wereceived occasional anecdotal reports from Barclays of problemswith Libor,” New York Fed spokeswoman Andrea Priest said this weekin a statement.

Priest said that in early 2008, after the failure of BearStearns Cos. in the financial crisis, the district bank “madefurther inquiry of Barclays as to how Libor submissions were beingconducted” and it later “shared our analysis and suggestions forreform of Libor with the relevant authorities in the U.K.”

The Senate Banking Committee plans to question Geithner and FedChairman Ben S. Bernanke on the scandal at regularly scheduledhearings this month. Committee Chairman Tim Johnson, a South DakotaDemocrat, said July 10 he is “concerned by the growing allegationsof potential widespread manipulation of Libor and similar interbankrates.”

Twelve Democratic senators, including Jack Reed of Rhode Islandand Carl Levin of Michigan, yesterday sent a letter to Geithner andAttorney General Eric Holder asking for an examination of“allegations that U.S. and foreign bank regulators may have beenaware of this wrongdoing for years.”

“This scandal calls into further question the integrity of manyWall Street banks and whether our prosecutors and regulators are upto the task of regulating them,” the letter said.

Among Geithner's recommendations to King was to add a secondLibor fixing for the U.S. market and to broaden the number of bankstaking part in the U.S. fixing beyond JPMorgan Chase & Co.,Bank of America Corp. and Citigroup Inc. That would “produce afixing that is more representative of the London interbank marketand less susceptible to the specific funding issues ofinstitutions” that do not have a broad dollar funding base.

Libor is calculated from a daily survey carried out for the BBAin London, in which the world's biggest lenders are asked the ratethey're charged to borrow over a variety of short-term maturitiesin currencies including dollars, euros and yen. Banks are accusedof low-balling submissions for the benchmark during the financialcrisis.

Bloomberg News

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