It was impossible to spot Libor rigging: UK watchdog

Wed Feb 27, 2013 8:59am EST
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By Huw Jones

LONDON (Reuters) - Regulators could not have spotted the "lowballing" of Libor interest rates during the financial crisis even if they had looked, Britain's Financial Services Authority said.

The watchdog's chairman, Adair Turner, told a parliamentary commission on banking standards on Wednesday it was much easier to see abuses in share trading by using computers.

Manipulation of the London interbank offered rate (Libor) during the 2008 crisis, for which three banks - Barclays BARC.L, Royal Bank of Scotland (RBS.L: Quote) and UBS UBSN.VX - have been fined so far was far harder to see, he said.

"There was no information on the trader manipulation," Turner told the commission. Libor is used to price trillions of dollars of financial products from derivatives to mortgages.

As markets went into meltdown following the collapse of Lehman Brothers in September 2008 some banks put in low submissions for rates at which they could borrow from other banks to give an impression they were sound.

The FSA's report into when and what it knew about Libor rigging will be published on Tuesday, March 5.

It comes after questions from lawmakers as to why the U.S. Commodity Futures Trading Commission began probing possible rigging of the London-based Libor before the FSA.

Neither the FSA, the CFTC - two of the regulators that have fined the three banks - or other regulators had ways to see the trader manipulation, Turner said. "We could not have got at it by intensive supervision. You just cannot have a police force big enough to spot all these problems."   Continued...

A branch of Barclays bank is seen in Boroughbridge, northern England June 4, 2009. REUTERS/Nigel Roddis