Senators urge probe of Libor regulators

Listen to this article


A dozen senior US lawmakers have urged the nation’s top law enforcement officer to hold regulators to account if they knew about manipulation of Libor but looked the other way.

The Federal Reserve Bank of New York said this week it became aware of “problems” with the London interbank offered rate following the onset of the financial crisis in late 2007. Tim Geithner, US Treasury secretary, headed the New York Fed at the time.

The letter, dated on Thursday, was sent by Democratic legislators including Patrick Leahy, chairman of the Senate judiciary committee, Carl Levin, who heads the Senate’s investigative panel, and multiple members of the Senate banking committee including Jack Reed.

“We are ... troubled by allegations that US and foreign bank regulators may have been aware of this wrongdoing for years,” the lawmakers wrote. “Just like the banks and executives they oversee, regulators who were involved should be held to account for any failures to stop wrongdoing that they knew, or should have known about.”

The call represents an escalation of US interest in an expanding investigation that threatens as many as 20 banks and inter-broker dealers which may have attempted to manipulate a rate that sets the terms for hundreds of trillions of dollars of financial instruments.

The lawmakers demanded that Eric Holder, US attorney-general, apply criminal penalties for bankers and traders found to have rigged Libor. The justice department has been criticised for taking a lax approach to wrongdoing on Wall Street in the wake of the financial crisis.

The letter also increases pressure on Mr Geithner, who thus far had faced only Republican calls for increased disclosure into his involvement in the New York Fed’s efforts to identify problems with Libor and attempts to reform it.

“This scandal calls into further question the integrity of many Wall Street banks and whether our prosecutors and regulators are up to the task of regulating them,” the lawmakers wrote.

Both a spokesman for Mr Geithner and the New York Fed declined to comment.

US congressional interest in the Libor scandal has risen as lawmakers have discovered the implications possible rate-rigging may have had on households and other borrowers.

There are at least 900,000 outstanding US home loans indexed to Libor that were originated from 2005 to 2009, the period the key lending gauge may have been rigged, investigators have said. Those mortgages carry an unpaid principal balance of $275bn, according to the Office of the Comptroller of the Currency, a bank regulator.

“This can, and likely did, hurt millions of American families, businesses, and municipalities,” the senators wrote.

On June 27 Barclays agreed to pay US and UK authorities $450m to settle allegations it had attempted to manipulate Libor.

The lawmakers urged financial regulators including Ben Bernanke, the Fed chairman, to do “much more” by thoroughly investigating whether banks attempted to rig the lending gauge and to determine whether borrowers and investors were harmed as a result.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from and redistribute by email or post to the web.