BBC to air recording that implicates Bank of England in Libor scandal
The Bank of England has found itself under the spotlight again over the fixing of a key interest rate during the credit crunch after new details emerged of bankers discussing Threadneedle Street’s alleged involvement in the setting of Libor.
BBC1’s Panorama programme said it had obtained a recording of a 2008 call between two bankers at Barclays in which the more senior person said the government and Bank of England were exerting pressure on it to lower the rate it offered for Libor – the London interbank offered rate, which is the interest rate banks charge each other for short-term loans.
Libor is used as a reference point around the world for loans and mortgages and is set each day by a panel of leading banks, with each one submitting the rates at which it is willing to borrow.
Revelations that the rate was rigged at the height of the financial crisis have led to banks being fined hundreds of millions of pounds from a variety of regulators, while bankers from Barclays and UBS have been jailed.
The BBC said its investigations added to evidence the Bank of England had pressured commercial banks to push their Libor rates down and that the transcript of the phone conversation at Barclays called into question evidence to the Treasury select committee in 2012 by the former Barclays boss Bob Diamond and Paul Tucker, former deputy governor of the Bank of England.
Labour’s shadow chancellor, John McDonnell, called for a new investigation on the back of the broadcaster’s report.
“This is an extremely serious revelation that contradicts past assurances about the role of the Bank of England in the Libor scandal,” he said.
“It goes to the very heart of whether our financial institutions can be trusted. Therefore, it warrants an immediate high-level investigation, and the chancellor must act straight away to ensure this happens.”
The BBC said that in the recording, a senior Barclays manager, Mark Dearlove, is heard instructing a Libor submitter, Peter Johnson, to lower his rates.
“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,” Dearlove told Johnson, according to the BBC.
Johnson, a 35-year Barclays veteran, pleaded guilty in October 2014 and was sentenced to four years in prison for conspiring to fraudulently rig global benchmark interest rates.
The October 2008 conversation between Dearlove and Johnson was first reported in the recently published book on Libor rigging, The Fix, by Gavin Finch and Liam Vaughan.
For the Bank of England, the recording returns unwelcome attention to its role during the Libor scandal after it was forced to deal with allegations about pressure on commercial banks during parliamentary hearings almost five years ago.
In 2012, the former senior Barclays executive Jerry del Missier justified his decision to order his staff to manipulate interest rates in 2008 by saying he believed he was acting on the instruction of the central bank.
Del Missier told MPs on the Treasury select committee that he had issued the instruction after a conversation with his then boss, Diamond, in October 2008, when the financial system was on the brink. Diamond was then running Barclays Capital, the investment banking arm, before being promoted to chief executive.
Diamond resigned as chief executive of Barclays in the wake of the £290m fine received by the bank for attempting to manipulate Libor.
Tucker was also called before the committee to explain his dealings with Diamond. The MPs largely exonerated Tucker, but the release of a series of emails, including one in which he referred to Diamond as “an absolute brick”, raised questions about his cosy relationship with the City.
One member of the current Treasury committee, the Conservative MP Chris Philp, said he had seen the BBC’s “explosive” evidence. “Urgent enquiry needed,” Philp added on Twitter.
The Bank of England said it had provided a statement to the BBC noting that Libor and other global benchmarks were not regulated in the UK or elsewhere at the time. The Bank added it was helping with investigations by the Serious Fraud Office into Libor manipulation by employees at commercial banks and brokers.
“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,” the statement said.
The Treasury also sought to provide reassurances that standards had improved since the Libor scandal.
“The government is absolutely clear that we must learn from the lessons of the past,” said a Treasury spokesman.
“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.”
A spokesman for Diamond declined to comment. Barclays also declined to comment on behalf of the bank itself or on behalf of Dearlove.
Tucker had not responded to a Guardian request for comment at the time of publication.