Is The Bank Of England About To Be Dragged Into Lie-borgate, And Which US Bank Is Next

by Tyler Durden on 07/01/2012 11:42 -0400

While the Lieborgate scandal gathers steam not so much because of people’s comprehension of just what is at stake here (nothing less than the fair value of $350 trillion in interest-rate sensitive products as explained in February), but simply courtesy of several very vivid emails which mention expensive bottles of champagne, once again proving that when it comes to interacting with the outside world, banks see nothing but rows of clueless muppets until caught red-handed (at which point they use big words, and speak confidently), the BBC’s Robert Peston brings an unexpected actor into the fray: the English Central Bank and specifically Paul Tucker, the man who, unless Goldman’s-cum-Canada’s Mark Carney or Goldman’s Jim O’Neill step up, will replace Mervyn King as head of the BOE.

From the BBC:

In making false submissions about their borrowing costs, managers at Barclays believed they were operating under an instruction from Paul Tucker, deputy governor of the Bank of England, I have learned.

 

This belief was fostered after a telephone conversation in the autumn of 2008 between Mr Tucker and Bob Diamond, who at the time ran Barclays’ investment bank, Barclays Capital, and is today chief executive of Barclays.

 

The heart of the matter is that in 2008, at the height of the credit crunch, the perception of banks’ financial strength was linked to how much they had to pay to borrow. Barclays managers were very worried that the appearance of the bank paying more to borrow than other banks was damaging confidence in its health.

 

So Barclays so-called “submitters”, the managers who gave borrowing data to the British Bankers Association’s Libor-setting committees, consistently told these committees that Barclays was paying a lower interest rate to borrow than was actually the case.

 

And what is striking is that after their conversation took place, senior Barclays’ management on October 29 2008 gave an explicit instruction to reduce Libor submissions.

We hope it comes as no surprise to anyone that central banks, already known to sell Treasury puts in order to game interest rates on global benchmark securities, would go so far as to advise BBA member (which as noted last week was shocked to find that epic manipulation was going on here) banks to do all in their power to lie and cheat to the market in order to avoid the perception of reality.

Yet here is the punchline in Peston’s piece:

What is striking is that even the artificially suppressed quotes for Barclays’ borrowing costs provided to the BBA committee were higher than other banks’ quotes.

Which conveniently brings us once again to our piece from January 22, 2009 when the market was crashing every single day, when the world’s central banks would do anything to halt the collapse in risk and asset prices, up to an including telling their host banks to lie about funding conditions, before the real QE1 was announced back in the middle of March, in which we made just this speculation.

Read the rest of the article here: Zero Hedge

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