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Geithner saw issues with Libor calculation in 2008, documents reveal

Timothy Geithner

Documents reveal that when Treasury Secretary Timothy Geithner was head of the New York Federal Reserve Bank, he noted fundamental issues with the establishment of Libor during the 2008 financial collapse.

Geithner then contacted U.K. authorities to discuss issues surrounding the calculation of the London interbank offered rate, a key interest rate used in derivatives contracts that is commonly known as Libor. Geithner suggested reforms to the system in an email to British authorities in which he said that the authorities should “strengthen governance and establish a credible reporting procedure” and “eliminate incentive to misreport,” DealBook reports.

Barclays reported false rates over the course of several years as part of an effort to increase profit and minimize concerns regarding the bank’s health. The bank agreed last month to pay $450 million to U.K. and U.S. authorities to settle a claim that it had manipulated Libor.

The move against Barclays is one of several that are expected to follow after a multiyear probe into allegations of Libor manipulation by big banks. International authorities are pursuing investigations against other big banks, as well, including Citigroup, UBS and JPMorgan, according to DealBook.

London and Washington lawmakers have questioned whether U.S. officials, including the Federal Reserve, knew of Barclays’s misconduct. Barclays said that the bank notified both the New York Federal Reserve and the Bank of England that it had reported artificial rates.

The House Financial Services Committee sent a letter this week to the New York Fed requesting transcripts from phone calls involving Barclays executives and regulatory authorities. The New York Fed plans to release those documents on Friday, DealBook reports.

Geithner is not mentioned in the transcripts, though it is unclear what — if any — knowledge Geithner had of the misconduct or what actions he took regarding the matter.

The New York Fed became aware of issues with Libor in 2007, at which time Barclays began briefing U.S. and U.K. regulators about their artificial rate submissions. In April 2008, a Barclays employee told the Financial Services Authority of Britain of the bank’s Libor submissions.

“So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack?” the Barclays manager said, according to DealBook. “You could say we are.”

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