17 Jul Mervyn King defends Libor record to MPs
by Cameron Ings-Hodgson
Scottish news: Mervyn King defends Libor record to MPs
The Governor of the Bank of England, Mervyn King, reiterated that he had no knowledge of the Libor manipulation problem after being pressed on the matter by the Treasury Select Committee today alongside his Deputy Governor Paul Tucker.
When asked about Tim Geithner’s email regarding his concerns about the London interbank offered rate (Libor) from 2008 King stated that:
“The first I knew of Libor wrongdoing was when the FSA reports came out two weeks ago. The NY Fed [Federal Reserve Bank of New York] did not raise any evidence of wrongdoing with regards to Libor. None of us had any evidence of wrongdoing”.
While Mervyn King claims to have been oblivious to any wrongdoing, he admitted that:
“Libor was moving in a broadly expected fashion… but we were worried that underlying money markets were dysfunctional. We thought Libor was flawed.”
However, Mr King pinned the blame on regulators’ lack of action for the Libor scandal:
“If the Fed had regulatory concerns they would have shared that with the regulator [not the Bank of England]. They didn’t pass any information to us that Libor was being manipulated. The Fed could have shared that with us and they did not, all we would have done was pass it on. The Fed is a regulator, we were not; the Fed asked us for advice on how to interact with the BBA.”
Financial Services Authority chief Lord Turner has faced criticism for being slow to react to Libor abuses which it appears he was alerted to as early as 2007 by American regulators.
However, Governor King claimed to have had no knowledge of Libor being manipulated when his own depute, Paul Tucker, allegedly instructed Bob Diamond to lower Libor submissions. Diamond has claimed his colleague Jerry Del Missier misinterpreted the emails.
Even if Mervyn King was indeed oblivious to these activities, he has also been accused of negligence by David Blanchflower, previously of the Monetary Policy Committee who in an interview with the Huffington Post stated that:
“People told him about the Libor issue and he just wasn’t interested. He didn’t share any of the information with the rest of us on the Monetary Policy Committee.”
King played down the role of the Libor adjustment in the credit crisis:
“I think there are similarities with betting in cricket, because nobody saw it. It wasn’t a whole game being fixed but three or four no balls”.
The Libor market is estimated to affect at least £224 trillion in derivatives products whereby homeowners, businesses and local authorities around the world are likely to have lost out financially. The fixing scandal may not only be confined to Libor and may also have taken place in the setting of oil prices too, it has emerged.