George Osborne in the dock over bank chief’s Libor testimony
CHANCELLOR George Osborne is under pressure to “withdraw his smears” about the last Labour government after a senior Bank of England official “absolutely” rejected claims that he or any minister had put pressure on Barclays to fix a key market interest rate.
Deputy governor Paul Tucker told MPs that he rejected suggestions he had leant on Barclays to manipulate the Libor inter-bank lending rate.
He also dismissed claims that the then Downing Street chief of staff Sir Jeremy Heywood, then City minister Ed Balls and former Treasury minister Baroness Vadera had asked him to pressure Barclays to lower its submissions to the system central to the setting of interest rates.
Mr Tucker’s denial under questioning at the Treasury select committee followed furious exchanges last week between Mr Osborne and Mr Balls, over the Chancellor’s decision to point his finger at his opposite number in an interview. The accusation centred on speculation that the then Labour government and BoE wanted Barclays to give the impression it was healthier than it really was so it would not need a bail out similar to the Royal Bank of Scotland and HBOS.
This had come after suggestions by former Barclays chief executive Bob Diamond in evidence to the Treasury select committee and in a briefing from Barclays that “senior figures in Whitehall” had known and asked for the Libor rate to be fixed during the 2008 banking collapse through a conversation he had with Mr Tucker.
The evidence session yesterday began with the publication of e-mails between Mr Tucker and Mr Diamond and Mr Tucker and Cabinet Secretary Sir Jeremy Heywood, which indicated there was serious concern in the government and BoE over what was happening with Libor in relation to Barclays.
On 21 October in 2008, Sir Jeremy e-mailed Mr Tucker asking: “Why are UK LIBOR spreads not failing as fast as US?”
In an e-mail the following day he pointed out that the Barclays rate was two points above the base rate.
Just before that second e-mail Mr Tucker sent a message to Mr Diamond asking about Libor and added: “Sorry to bother you. It’s a slightly sensitive point.”
Then on 25 October he sent another message to Mr Diamond pointing out that Barclays was selling government guaranteed bonds at 140 over gilts.
“That’s a lot,” he added.
Mr Diamond last week claimed that on 28 October in a telephone call, Mr Tucker had suggested that senior Whitehall figures wanted the rate lowered.
Mr Diamond’s note of the call concluded by saying Mr Tucker had stated that “it did not always need to be the case that we appeared as high [with Libor submissions] as we have recently”.
Mr Tucker insisted yesterday that the former Barclays boss had “given the wrong impression” in his last sentence and misunderstood him.
He went on: “It should have said something along the lines of: ‘Are you insuring that you, the senior management of Barclays, are following the day-to-day operations of your money market desk, your treasury, are you insuring that they don’t march you over the cliff inadvertently by giving signals that you need to pay up for funds?’”
But Mr Tucker was forced to admit that he had not kept a note of the conversation and blamed this on the “system creaking” because of the number of calls and meetings at the height of the banking crisis. And he explained that the concern expressed in the e-mails was based on a fear that “Barclays was next” after the collapse of RBS and HBOS.
Some members of the committee were unconvinced by his claims that there had been no government interference.
SNP committee member Stewart Hosie pointed out that following a business breakfast with the then Labour chancellor Alistair Darling attended by the banks on 7 November 2008, there was a record reduction in the Libor rate.
There were calls last night for the Chancellor to concede he was wrong about Mr Balls’ involvement.
Shadow Treasury minister Chris Leslie said: “The game is up for George Osborne. This is now the final nail in the coffin of the Tory smear campaign the Chancellor led last week. It is now crystal clear that the allegations he threw around were completely wrong and without foundation.”
And in a statement Mr Balls added: “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.”
However, a source close to Mr Osborne insisted that there would be no apology and that part of the complaint was based on an alleged misquote.
He added: “Let’s be absolutely clear questions remain about the role of ministers and advisors in the last government.
“This has not changed with Paul Tucker’s evidence and we never expected it would be resolved at the hearing.”
In further evidence to the committee Mr Tucker described the setting of the Libor rate as “a cesspit” and called for an end to the practice of “self-certification” under which banks submit figures on the basis of their own judgments rather than actual transactions.
He said the review of the operation of Libor being undertaken by the Financial Services Authority’s Martin Wheatley should also look at all indices which rely on self-certification.
Mr Tucker told the committee he was not aware of any incident of Libor being manipulated since 2008, and was only aware of manipulation before that date because of the revelations from FSA investigations over the past few weeks.
“We didn’t have any knowledge, I didn’t have any knowledge of this,” he said.
Asked if it was only over the last month or so that the BoE became aware, Mr Tucker completed the question: “That this was a cesspit? Yes.”
He told the committee: “As part of the review the government has commissioned from Martin Wheatley, as well as Libor, they should look at every single index that isn’t based on real transactions and where participants in the market have to self-certify.
“That plainly does not work. Even if these other markets have been completely clean over that period, self-certification is plainly open to abuse and so it could occur elsewhere. I think the governor made that fairly clear in the press conference last week.”
Mr Tucker said the Bank preferred Libor to be based on real transactions, rather than banks’ assessments of the rates at which they believed they could borrow. But he stressed the Bank was not responsible for operating Libor and had no regulatory responsibilities over it.
At certain points in 2007 and 2008, he said, there was virtually no inter-bank lending going on, and submissions were based on notional figures.
“Markets had dried up,” said Mr Tucker.
But he said the Bank of England has no power to prevent the use of self-certified figures: “We would much prefer it to be based on actual transactions. But we don’t require anything. We are not responsible for Libor in that sense.”
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