UBS note deepens UK political row over rate-fixing

Sat Jul 7, 2012 4:42pm EDT
 
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By Tim Castle

LONDON (Reuters) - A political row in Britain over fixing of interbank lending rates deepened on Saturday after the publication of confidential advice from UBS to the previous Labour government on how to reduce the key Libor rate at the height of the financial crisis in 2008.

The Conservative-led coalition, trailing in opinion polls, has tried to pin part of the blame for the rate-fixing by bank traders on the government of former Labour Prime Minister Gordon Brown, questioning whether it directly or indirectly sanctioned the manipulation.

The chairman and chief executive of Britain's Barclays Plc both resigned this week after the bank agreed to pay nearly $450 million for its part in rigging the Libor rate between 2005 and 2009, which is used to settle interest rates on trillions of dollars of contracts globally.

The scandal has reignited anger in Britain against bankers, who are blamed for a deep recession the country is struggling to escape.

Labour, now in opposition, said the coalition government had tried to smear the party by insinuating that the confidential advice was about the deliberate manipulation of the Libor rate.

The advice, in a note titled "Reducing Libor, improving lending conditions", was sent from Swiss-based bank UBS to the Treasury at a time when lending between banks had all but dried up over fears they might collapse.

Instead, the document, published in the Financial Times, "simply proposes legitimate policy improvements" to reduce the cost of banks lending to each other during the credit crunch, Labour said.

It called on the coalition's finance minister George Osborne to withdraw "false allegations" that people close to Brown were at fault over the rate-fixing scandal.   Continued...

 
The logo of Swiss bank UBS is seen at the company's office at the Bahnhofstrasse in Zurich in this July 1, 2009 file photo. REUTERS/Arnd Wiegmann/Files