Bank of England says it acted on Geithner's Libor email

Fri Jul 13, 2012 1:34pm EDT
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By David Milliken and Timothy Ahmann

LONDON/WASHINGTON (Reuters) - The Bank of England confirmed on Friday it had received U.S. recommendations to overhaul the Libor benchmark at the heart of a global rate-rigging scandal, saying it had passed them on to the banking group responsible for the rate.

Documents obtained by Reuters earlier on Friday showed that U.S. Treasury Secretary Timothy Geithner pressed the British central bank in June 2008 to make changes to the way that the widely used interest rate benchmark was set.

Geithner, who was the head of the New York Federal Reserve Bank at the time, sent a private email to BoE Governor Mervyn King recommending six ways to enhance the credibility of the London interbank offered rate.

The BoE passed on Geithner's thoughts in an email to the British Bankers Association (BBA) - the banking group responsible for Libor - which at that stage had already decided to launch a review of the rate.

"Both the Bank and the Federal Reserve were assured by the BBA that it would take on board the recommendations, either through actions or through questions on which it would consult," the BoE said in a news release.

More than a dozen banks are under investigation by authorities in Europe, Japan and the United States over suspected rigging of Libor, which is used in financial contracts worth hundreds of trillions of dollars globally.

The June 1, 2008 email, first reported by the Washington Post, included a two-page memo dated May 27 of that year that suggested establishing best practices for calculating Libor, "including procedures designed to prevent accidental or deliberate misreporting."

It recommended the British Bankers' Association require that auditors for banks reporting their borrowing costs for the calculation of Libor attest to the accuracy of their rates.   Continued...

U.S. Treasury Secretary Timothy Geithner speaks at the Council on Foreign Relations (CFR) discussion on the state of the global economy and the U.S. recovery in advance of the G-20 Summit next week, in Washington June 13, 2012. REUTERS/Yuri Gripas