by Bill McBride on 7/13/2012 11:13:00 PM
Friday, July 13, 2012
First, from the NY Times today: New York Fed Was Aware of False Reporting on Rates
The Federal Reserve Bank of New York learned in April 2008, as the financial crisis was brewing, that at least one bank was reporting false interest rates.Oh my. Really? In April 2008? We were discussing this in 2007! Here are a few of the articles I linked to years ago ...
At the time, a Barclays employee told a New York Fed official that “we know that we’re not posting um, an honest” rate, according to documents released by the regulator on Friday. The employee indicated that other big banks made similarly bogus reports, saying that the British institution wanted to “fit in with the rest of the crowd.”
From the Financial Times in September 2007:
“The Libor rates are a bit of a fiction. The number on the screen doesn’t always match what we see now,” complains the treasurer of one of the largest City banks.From the WSJ in April 2008: Bankers Cast Doubt On Key Rate Amid Crisis
The screen will say one thing but people are actually quoting a different level, if they are quoting at all,” says one senior banker.
The concern: Some banks don't want to report the high rates they're paying for short-term loans because they don't want to tip off the market that they're desperate for cash. The Libor system depends on banks to tell the truth about their borrowing rates. Fibbing by banks could mean that millions of borrowers around the world are paying artificially low rates on their loans. That's good for borrowers, but could be very bad for the banks and other financial institutions that lend to them.From Bloomberg in May 2008: Libor Set for Overhaul as Credibility Is Doubted
"The Libor numbers that banks reported to the BBA were a lie," said Tim Bond, head of global asset allocation at Barclays Capital in London. "They had been all the way along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers."The only new news is that the banks are finally paying fines ...
Posted by Bill McBride on 7/13/2012 11:13:00 PM