BANK OF England deputy governor Paul Tucker has said he cannot give guarantees about the honesty of any part of the financial system following the discovery of widespread fraudulent declarations of Libor inter-bank rates.
“I can’t be confident of anything after learning about this cesspit,” Mr Tucker, who asked to appear urgently before the House of Commons treasury select committee after it was alleged last week that he had urged Barclays Bank to cut its rates in 2008, told MPs.
However, the two-hour session may have damaged Mr Tucker’s desire to replace the Bank of England’s governor, Sir Mervyn King, when the latter steps down next year, after he admitted the bank was not aware that deliberately low rate quotes were being lodged in 2008.
Conservative MP Mark Garnier pointed out that minutes from a meeting in November 2007 of the Bank of England had raised concerns about Libor.
“Libor fixings had been lower than actual traded inter-bank rates through the period of stress, are unrealistically low,” said the MP, quoting from the minutes.
However, Mr Tucker said the Libor figures were the result of a dysfunctional, illiquid market, but foul play was not suspected: “Nobody presented this as dishonest.”
However, the influential chairman of the Treasury Select Committee, Mr Andy Tyrie, declared: “This doesn’t look good Mr Tucker. It doesn’t look good, I can tell you.”
Mr Tucker said he was not aware of any allegations of “low-balling” – the term now given to the manipulation of submissions by the 16 banks whose figures create Libor rates daily – until the past few weeks.
A combined investigation by the UK Financial Services Authority and US investigators has already led to a £290 million fine against Barclays, and multi-billion fines are coming down the track for the other banks involved.
He believes some of the criticism of the Bank of England is now unfair, given the scale of the crisis
it faced during 2008. “It was a mess. The world financial system fell apart. We had experienced nothing like it.”
He said he believed the warning by former Barclays chief executive Bob Diamond that other banks were deliberately submitting unrealistically low estimates of what they would pay for inter-bank loans was evidence that they “didn’t know what each other are doing”, he said. “I didn’t read this as cheating.”
Mr Tucker repeatedly rejected the notion that he had come under pressure from Labour politicians in 2008 to pressure Mr Diamond into cutting the bank’s Libor daily submission, as had been charged by the chancellor of the exchequer, George Osborne.
Asked if pressure had come from former City Minister Ed Balls, Gordon Brown’s key City adviser, Shriti Vadera, or anyone else at the heart of the New Labour government, Mr Tucker repeatedly said “absolutely not”.
However, a series of emails released by the Bank of England in response to Freedom of Information questions from Labour MP John Mann did reveal the concerns shared over Libor by the Bank of England and No 10.
In one email, Mr Tucker, then the central bank’s head of markets, told the now ousted Mr Diamond: “Struck that your gov’t gnteed bond was issued at around 140 over gilts. That’s a lot.”
Last week, Barclays released a note by Mr Diamond of a conversation he had with Mr Tucker in October 2008 when he alleged that the deputy central bank governor had said “senior Whitehall figures” wanted lower quotations from Barclays.
Last night Mr Balls seized on Mr Tucker’s declaration, saying: “It is now absolutely clear that the chancellor’s allegations last week were totally false and completely without foundation. George Osborne should now publicly withdraw these false allegations and apologise.” Mr Osborne’s decision so nakedly to pursue Mr Balls over the issue has caused private fury within Conservative ranks, many of whom have been scathing about his political judgment.
