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A senior Barclays manager blamed the Bank of England for pressuring the lender to submit a lower reading for the key Libor interest rate during the 2008 financial crisis, according to the newly released transcript of a conversation.
The BBC released details on Monday of the exchange between Mark Dearlove, the manager, and Peter Johnson, his Libor submitter. Mr Johnson pleaded guilty in 2014 to conspiring to manipulate the Libor rate.
“The bottom line is you’re going to absolutely hate this . . . but we’ve had some very serious pressure from the UK government and the Bank of England about pushing our Libors lower,” Mr Dearlove said.
The BoE has always denied it encouraged banks to submit false readings for Libor, which measures the rate at which banks can borrow from one another and is used as the basis for millions of loans. Libor was traditionally set based on the submissions of a panel of lenders.
Banks have been fined about $9bn for rigging the rates they submitted, including a £290m fine imposed on Barclays. Bob Diamond, who was the bank’s chief executive at the time, was forced to quit because of the scandal, and four of its bankers were convicted for their role in the rate-rigging after prosecutions brought by the UK’s Serious Fraud Office.
Soon after he stepped down, Mr Diamond suggested that the BoE was complicit in the rigged Libor submission. His notes from the time, which were made publicly available, said Sir Paul Tucker — who was then an executive director at the BoE and later rose to deputy governor — had passed on concerns from Whitehall about Barclays’ Libor submission, adding: “It did not always need to be the case that we appeared as high as we have recently.”
One of Mr Diamond’s conversations with Sir Paul was on October 29, 2008. The new recordings, which are part of a BBC Panorama documentary, show that Mr Dearlove and Mr Johnson had their Libor exchange on the same day.
The tape shows that Mr Johnson — one of four Barclays bankers who were sent to prison for rigging Libor — objected, saying the Libor rules required him to put in rates based only on the cost of borrowing cash. He then sought clarification of what he was being asked to do, saying: “So I’ll push them below a realistic level of where I think I can get money?”
Mr Dearlove, who was his boss at the time, replied: “The fact of the matter is we’ve got the Bank of England, all sorts of people involved in the whole thing . . . I am as reluctant as you are . . . these guys have just turned around and said just do it.”
The SFO is already investigating allegations that Barclays “lowballed” its Libor submissions during the financial crisis to give a healthier impression of its borrowing costs. Mr Dearlove, a nephew of a former MI6 boss, is one of those whom the SFO has interviewed under caution, when individuals are read their rights.
Barclays was not immediately able to comment on the latest developments. In a statement on the Panorama tapes, BoE said the central bank had been “assisting the SFO’s criminal investigations into Libor manipulation by employees at commercial banks and brokers by providing, on a voluntary basis, documents and records requested by the SFO.
“The bank is committed to publishing materials relating to the SFO’s investigations into benchmark manipulation when it is appropriate to do so. Until the SFO’s ongoing prosecutorial activity relating to Libor and other benchmarks has concluded, the bank is not in a position to publish these materials.”
Days after Mr Diamond’s notes were released, in July 2012, the BoE released emails between him and Sir Paul that cast their conversations in a less controversial light. According to one email, from October 22, 2008, Sir Paul wanted to talk about the structure and sources of Barclays’ money market funding before the crisis “to get a better handle on just how much ground we’ve got to recover and where the changed circumstances of non-bank financial institutions and others is going to matter”.
An October 25 email remarked on the high cost Barclays was having to pay to get investors to fund its government-backed bonds. None of the emails included any request for the bank to lower its Libor submissions.
At a parliamentary hearing in July 2012, Sir Paul said he “absolutely” rejected suggestions he had been inviting Barclays to “join the pack and under-report Libor”. He said at the time he was focusing on whether “the world was going to fall apart” or whether the measures taken by the BoE and the UK government had worked.
A Treasury spokesperson said: “The government is absolutely clear that we must learn from the lessons of the past. That is why, since the financial crisis, we have carried out wholesale reform of how the financial system is regulated in this country, including making the manipulation of Libor a criminal offence.”
The BoE already faces a separate SFO probe into whether it was aware of and condoned rigging of special liquidity auctions it organised at the onset of the crisis. Sir Paul is among the senior officials who served at the time to have been questioned by the SFO as part of that probe, the Financial Times has previously reported.