Bernanke, Geithner response to Libor scandal rings hollow

Sat Jul 28, 2012 12:49pm EDT
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By Pedro Nicolaci da Costa

WASHINGTON (Reuters) - Ben Bernanke heads the most powerful central bank in the world. Yet the Federal Reserve chairman says he was largely powerless to stop what some are calling the biggest financial fraud in history: the systematic manipulation of a key global interest rate.

It's a line of argument that has fallen flat with some lawmakers and investors, who want to know why Bernanke and other key U.S. regulators did not do more to end a potentially criminal rigging of interest rates affecting trillions of dollars in financial contracts.

Bernanke said last week he had been largely unable to directly address problems with Libor, or the London interbank offered rate, which he said he learned of in 2008.

"We are and need to continue advocating for reforms to the Libor process. It is constructed by a private organization in the UK, and so our direct ability to influence that is limited," Bernanke said in congressional testimony.

Timothy Geithner, who oversaw Wall Street as president of the New York Fed for five years before he became Treasury Secretary in 2009, has delivered much the same message.

He told lawmakers this week that he informed regulators "early on" about the problems and made recommendations to the Bank of England on how to reform the system.

"Seriously? They did all that they could do? I mean, come on," said Alan De Rose, managing director of government and trading finance at Oppenheimer in New York.

"Answers like those, they strain credibility," said De Rose, formerly a trader at a U.S. primary dealer, the selected large banks that do business directly with the Fed.   Continued...

U.S. Secretary of the Treasury Tim Geithner (L) listens to Federal Reserve Board Chairman Ben Bernanke (R) during testimony before the House Committee on Oversight and Government Reform in Washington March 21, 2012. REUTERS/Gary Cameron