"The British Bankers' Association (BBA) issued a warning to banks in April 2008 to "submit honest rates" to its Libor setting panel, according to a series of emails which demonstrate that the problems with the crucial interest rate were being discussed at the highest level during the financial crisis.
The warning is revealed in 80 pages of emails from 2008 released by the Bank of England on Friday as part of its attempt to deflect criticism by MPs that it had been warned by regulators in New York about problems with the rate setting process.
The emails show that the BBA, which oversees the setting of Libor, had wanted the Bank of England to take a bigger role in the rate setting process but was rebuffed by the central bank.
Libor is set by a panel of banks which are asked the price at which they think they might be able to borrow on the markets, rather than the actual price at which they could borrow. One email, dated 21 May 2008, appears to show that Angela Knight, the chief executive of the BBA, was aware of the potential for banks to submit rates not reflecting the price at which they though they might borrow. She refers to the issue in an email sent to Paul Tucker, deputy governor of the Bank of England, as they discuss potential changes to the way the rate is set.
An internal email at the Bank of England, sent by an employee whose name has been redacted, also tells Tucker of the "longstanding perception that Libor by virtue of the manner in which it is set is open to distortion".
The memo, dated 22 May 2008, goes on: "Panel banks have no obligation to trade or to have traded at rates that they submit so it is at least plausible that these are influenced by commercial incentives."
The memo, sent during the credit crunch when banks were reluctant to lend to each other, describes confidence in Libor as "fragile" and mentions the "powerful incentive" for banks to "avoid the stigma" of submitting high rates which might demonstrate they were in financial difficulty. It is copied to other Bank officials."
Source: Libor-fixing problems known at height of financial crisis | Business | The Guardian
They gotto to be kidding - no obligation? Even Top UK Music Charts have stricter conditions - actual sale of music.
If I was writing the rule I'd demand list of transactions with counter party name, amount borrowed or loaned and rate: given that all parties are members of the panel it would be trivial to see if some party on it's own does not declare everything correctly. There would still be possibility for 2 parties to agree to fake data together but that should be much harder and with very harsh penalties associated with it the problem could have been avoided.
The warning is revealed in 80 pages of emails from 2008 released by the Bank of England on Friday as part of its attempt to deflect criticism by MPs that it had been warned by regulators in New York about problems with the rate setting process.
The emails show that the BBA, which oversees the setting of Libor, had wanted the Bank of England to take a bigger role in the rate setting process but was rebuffed by the central bank.
Libor is set by a panel of banks which are asked the price at which they think they might be able to borrow on the markets, rather than the actual price at which they could borrow. One email, dated 21 May 2008, appears to show that Angela Knight, the chief executive of the BBA, was aware of the potential for banks to submit rates not reflecting the price at which they though they might borrow. She refers to the issue in an email sent to Paul Tucker, deputy governor of the Bank of England, as they discuss potential changes to the way the rate is set.
An internal email at the Bank of England, sent by an employee whose name has been redacted, also tells Tucker of the "longstanding perception that Libor by virtue of the manner in which it is set is open to distortion".
The memo, dated 22 May 2008, goes on: "Panel banks have no obligation to trade or to have traded at rates that they submit so it is at least plausible that these are influenced by commercial incentives."
The memo, sent during the credit crunch when banks were reluctant to lend to each other, describes confidence in Libor as "fragile" and mentions the "powerful incentive" for banks to "avoid the stigma" of submitting high rates which might demonstrate they were in financial difficulty. It is copied to other Bank officials."
Source: Libor-fixing problems known at height of financial crisis | Business | The Guardian
They gotto to be kidding - no obligation? Even Top UK Music Charts have stricter conditions - actual sale of music.
If I was writing the rule I'd demand list of transactions with counter party name, amount borrowed or loaned and rate: given that all parties are members of the panel it would be trivial to see if some party on it's own does not declare everything correctly. There would still be possibility for 2 parties to agree to fake data together but that should be much harder and with very harsh penalties associated with it the problem could have been avoided.
