A senior Bank of England official denied Monday that he had given any hint to Barclays that it should manipulate reports of its borrowing costs.
Paul Tucker, the Bank of England's deputy governor, also told U.K. lawmakers on the House of Commons Treasury Committee that no one in government had leaned on him to put pressure on Barclays to "lowball" its reporting.
Barclays has been fined $453 million by U.S. and British agencies for feeding false data which went into calculations of the London interbank offered rate (LIBOR), a key market index which influences the costs of a wide range of financial instruments, including home mortgages.
Tucker's testimony was significant in shedding further light on the rate-fixing scandal which shocked the financial world, and because it was Tucker's chance to give his version of a conversation with former Barclays CEO Bob Diamond on Oct. 29, 2008.
Any hint that Tucker encouraged any false reporting - the conclusion which some people drew from Diamond's version - could fatally undermine the Bank official's position as a leading candidate to succeed Mervyn King as governor next year.
As part of his evidence to committee last week, Diamond produced a memo saying Tucker had told him in a phone conversation "that while he was certain we (Barclays) did not need advice, that it did not always need to be the case that we appeared as high as we have recently."
Tucker said Diamond's account of events gave the wrong impression and that his conversation with the Barclays chief was "something along the lines of: `Are you insuring that you, the senior management of Barclays are following the day-to-day operations of your money market desk, your treasury; are you insuring that they don't march you over the cliff inadvertently by giving signals that you need to pay up for funds.'"
Unlike Diamond, Tucker said he had not made a note of the conversation at the time. "There were too many conversations, there were too many things going on," Tucker said.
In the wake of the fines, Diamond resigned and Barclays Chairman Marcus Agius announced that he would go as soon as his successor was chosen.
Treasury committee chairman Andrew Tyrie challenged Tucker about a meeting with bankers in November 2007 which Tucker chaired. The minutes recorded that "several group members thought that LIBOR fixings had been lower than actual traded interbank rates through the period of stress."
"This doesn't look good," Tyrie said, adding that the minute "appears to any reasonable person to be a clear indication of low-balling about which nothing was done."
However, Tucker said the meeting took a differenct interpretation: "Well, we thought it was a malfunctioning market, not a dishonest market."
Diamond last week gave his version of a conversation with Tucker about why Barclays was quoting higher rates than other banks. Diamond's version raised questions about whether Tucker - then the Bank of England's executive director for markets - had in any way encouraged Barclays to cheat on its rate submissions.
A note recorded by Diamond, which was submitted to Treasury Committee last week, said Tucker initiated the call, saying senior government officials were wondering why Barclays was reporting higher borrowing rates than other banks.
The implication, which also worried Barclays, was that this could be interpreted as a sign that Barclays was in financial difficulty and having trouble borrowing from other banks.
"I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions," Diamond recorded in a memo after the call. "His response was `Oh, that would be worse.'"
Tucker said he didn't think Diamond was alerting him to lying by other banks.
"Certainly a bell didn't go off - my goodness there's dishonesty here," Tucker said.
"I understood him to say, `we're basing ours on real transactions, the other guys aren't doing that,'" he said.
That could be, he said, simply because other banks weren't borrowing money from other banks, in some cases because the government had just injected billions to shore them up.
LIBOR is not based on actual transactions, but daily submissions are supposed to reflect each bank's judgment of the rate it would pay if it were borrowing money.
Diamond said he later discussed the conversation with Jerry del Missier, who was a senior manager of Barclays Capital.
"Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high. He passed down an instruction to that effect to the submitters," Diamond said. Del Missier resigned the same day as Diamond.
Barclays has said that individual traders - Diamond said it was 14 - sought to manipulate the LIBOR to protect their own positions at various times between 2005 and 2009. The bank has admitted that it also submitted false lower rates at times in 2007 and 2008 to discourage speculation that it was in trouble and thus had to pay more to borrow money from other banks.
Source: The AP