17-07-2012, 02:56 PM
Phone Call Transcripts Show NY Fed Knew About Libor Lies Before Financial Crisis
The NY Fed knew that banks were lying about their Libor rates back in 2008, according to transcripts of phone calls released today.
The Federal Reserve Bank of New York today released over a dozen documents in connection with the Libor scandal that's been unraveling in the banking industry.
Barclays staff members explained to the NY Fed the way it and other banks report false Libor rates, according to the documents which cover communications between August 2007 and November 2009.
The documents were released after requests by Chairman Neugebauer of the U.S. House of Representatives, Committee on Financial Services, Subcommittee on Oversight and Investigations. The NY Fed notes that the transcripts of phone calls were originally supplied by Barclays in light of the investigation.
One phone call between NY Fed staff member Fabiola Ravazzolo and a Barclays employee in April 2008 reveals that Barclays was doing what other banks were already engaging insubmitting Libor rates that were lower than what they should have been.
"LIBORs do not reflect where the market is trading which is you know the same as a lot of other people have said," the unnamed Barclays employee tells Ravazzolo.
On that particular call the Fed's Ravazzolo says she's heard some rumbling about banks possibly misstating their Libor ratesthe rate at which they are able to borrow money from other banks. The Barclays employee confirms her concerns saying:
It could get very ugly for banks who for the most part say the rigging was not done for profit. Rather, it was a way to keep their respective banks from appearing in worse financial health than they really were.
The Barclays employee on the call with the Fed's Ravazzolo tells her:
Marti G. Subrahmanyam, a finance professor at NYU's Stern School of Business, says the best case scenario for banks in the investigation is that they were lying about their rate to borrow money to make themselves look a bit healthier."It's one thing to lie about your borrowing rate to make you look better. That's like saying you're 5 feet 9 inches when you're really 5 feet 7 inches," he says.
But the worst case scenario is that the evidence shows banks were in fact colluding to push the Libor rates up or down for their own profit. "If banks were colluding to push the rates in one direction or another then that's a much more serious problem," Subrahmanyam says."
It's unclear which of these scenarios the new documents released by the Fed will favor but there are plenty of investors who say they were cheated out of money as a result of banks colluding to manipulate the Libor rate. Many have law suits in courts and analysts say they could cost banks billions.
http://www.forbes.com/sites/halahtouryal...pril-2008/
The NY Fed knew that banks were lying about their Libor rates back in 2008, according to transcripts of phone calls released today.
The Federal Reserve Bank of New York today released over a dozen documents in connection with the Libor scandal that's been unraveling in the banking industry.
Barclays staff members explained to the NY Fed the way it and other banks report false Libor rates, according to the documents which cover communications between August 2007 and November 2009.
The documents were released after requests by Chairman Neugebauer of the U.S. House of Representatives, Committee on Financial Services, Subcommittee on Oversight and Investigations. The NY Fed notes that the transcripts of phone calls were originally supplied by Barclays in light of the investigation.
One phone call between NY Fed staff member Fabiola Ravazzolo and a Barclays employee in April 2008 reveals that Barclays was doing what other banks were already engaging insubmitting Libor rates that were lower than what they should have been.
"LIBORs do not reflect where the market is trading which is you know the same as a lot of other people have said," the unnamed Barclays employee tells Ravazzolo.
On that particular call the Fed's Ravazzolo says she's heard some rumbling about banks possibly misstating their Libor ratesthe rate at which they are able to borrow money from other banks. The Barclays employee confirms her concerns saying:
Well, let's, let's put it like this and I'm gonna be really frank and honest with you…We were putting in where we really thought we would be able to borrow cash in the interbank market and it was above where everyone else was publishing rates. And the next thing we knew, there was um, an article in the Financial Times, charting our LIBOR contributions and comparing it with other banks and inferring that this meant that we had a problem raising cash in the interbank market. And um, our share price went down. So it's never supposed to be the prerogative of a, a money market dealer to affect their company share value. And so we just fit in with the rest of the crowd, if you like. So, we know that we're not posting um, an honest LIBOR. And yet and yet we are doing it, because, um, if we didn't do it it draws, um, unwanted attention on ourselves.
The Libor-rigging scandal forced Barclays pay $450 million in fines this month. Other banks including JPMorgan Chase, Bank of America, Citi, UBSand Deutsche Bank are under investigation.It could get very ugly for banks who for the most part say the rigging was not done for profit. Rather, it was a way to keep their respective banks from appearing in worse financial health than they really were.
The Barclays employee on the call with the Fed's Ravazzolo tells her:
What we've noticed is almost like um, a um, um perverse thing where people that we know that are paying for money actually put in the lowest LIBOR rates. So it, it's almost to um, you know the ones that need cash the most put in the lowest.
Concerns over the Libor rates were large enough at the NY Fed that its thenpresident Tim Geithner sent a memo to Bank of England Governor Mervyn King (CC'ing deputy governor Paul Tucker) calling for improvement to the credabilty of the Libor system. That memo, which listed six propose changes aimed at improving the integrity of Libor, was released by the NY Fed today.Marti G. Subrahmanyam, a finance professor at NYU's Stern School of Business, says the best case scenario for banks in the investigation is that they were lying about their rate to borrow money to make themselves look a bit healthier."It's one thing to lie about your borrowing rate to make you look better. That's like saying you're 5 feet 9 inches when you're really 5 feet 7 inches," he says.
But the worst case scenario is that the evidence shows banks were in fact colluding to push the Libor rates up or down for their own profit. "If banks were colluding to push the rates in one direction or another then that's a much more serious problem," Subrahmanyam says."
It's unclear which of these scenarios the new documents released by the Fed will favor but there are plenty of investors who say they were cheated out of money as a result of banks colluding to manipulate the Libor rate. Many have law suits in courts and analysts say they could cost banks billions.
http://www.forbes.com/sites/halahtouryal...pril-2008/
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx
"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.
“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.
“I think it would be a good idea” Ghandi, when asked about Western Civilisation.