Evidence in Libor rate-rigging sheds light on regulatory authorities’ implicit approval.

Recent evidence in the Libor rate-rigging scandal sheds light on the implicit approval of regulatory ‘authorities’ who had knowledge of bankers’ long-standing manipulation of the Libor. This “see no evil, speak no evil” regulatory approach must be met with serious repercussions for all those involved.

We should be nurturing an economic environment that enables no-nonsense regulators who have the manpower, funding and GUTS to impose heavy sanctions. Instead, Stockholm Syndrome appears to be a recurring theme in recent regulatory failures.

From The New York Times

Libor Case Documents Show Timid Regulators

BY BEN PROTESS AND MARK SCOTT

As an interest rate manipulation scandal grips the banking industry, regulators have defended their actions and trumpeted their efforts to overhaul the flawed system during the financial crisis.

But documents released on Friday show that regulators balked at playing a more public role in reform efforts during 2008, and some British officials resisted certain fixes.

Although the Federal Reserve Bank of New York and the Bank of England advocated changes to the rate-setting process, they demanded anonymity. In shunning the spotlight, the regulators deferred to the British Bankers’ Association, a private industry group that oversees the rate-setting process.

“They will obviously have to remove the references to us and Fed,” a Bank of England official said in a June 2008 e-mail, referring to a draft of the trade group’s proposal.

The documents, released by the Bank of England, shed new light on the inconsistent regulatory response to problems with the London interbank offered rate, or Libor. The crucial benchmark affects the cost of trillions of dollars in mortgages and other loans.

Authorities around the globe are investigating whether more than 10 banks reported false rates to produce profits and deflect concerns about their well-being. In June, Barclays reached a $450 million settlement with regulators over rate-rigging, the first case to stem from the broad investigation. The wrongdoing at Barclays intensified during the financial crisis, when the bank lowballed its rate out of fear that high borrowing costs indicated weak health.

After the Barclays case, lawmakers in London and Washington are questioning why regulators were not more aggressive in thwarting the illegal activities. The House Financial Services Committee is collecting transcripts of calls between regulators and the banks under scrutiny.

The trove of e-mails and documents released on Friday builds on what regulators have disclosed in pieces over the last few weeks.

The New York Fed previously divulged that it learned in April 2008 that Barclays was reporting false rates, a revelation that came months after hearing market chatter about issues with Libor. In testimony before Parliament this week, British authorities said the New York Fed never told them that Barclays was breaking the law.

Instead, Timothy F. Geithner, who served as the head of the New York Fed at the time, proposed changes to the rate-setting process. The Bank of England echoed the recommendations.

Page 1 of 2 | Next page