Evidence suggests that UK and US regulators were aware of attempts to manipulate interest rates during the 2008 financial crisis but allegedly engaged in a cover-up. Documents indicate that under pressure from central banks, lenders significantly lowered their interest rate estimates. However, this evidence was not presented to juries during the trials of bankers accused of smaller-scale interest rate manipulation.
Regulators either stated that they adhered to disclosure rules, declined to comment, or refuted the claims. While some evidence has previously emerged regarding Bank of England and UK government involvement in interest rate manipulation, the newly revealed evidence suggests a broader international effort by central banks across the Western world to lower key interest rates in October 2008.
During the financial crisis, central banks such as the Bank of England, Banque de France, European Central Bank, Banca d’Italia, Banco de Espana, and the Federal Reserve Bank of New York reportedly intervened extensively in setting Libor and Euribor rates.
While central banks publicly urged calm, my investigation has revealed evidence of behind-the-scenes efforts to artificially restore stability, actions that were later deemed unlawful in the UK. These actions pertained to benchmark interest rates like Libor and Euribor, which have a significant impact on the cost of mortgages and other loans.
In November 2010, investigating agencies including the FBI and UK financial regulator were informed about these activities. However, this information was kept secret from Parliament, Congress, and the public.
Andrew Tyrie, who chaired the UK Treasury Committee’s inquiry into the Libor scandal in 2012, expressed concerns that Parliament may have been misled based on the evidence uncovered.
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“The public rely on Parliament to get to the truth. This case illustrates why Parliament should bolster its information-gathering powers with more effective sanctions against those who provide less than the full picture. Parliament appears to have been misled and, if that’s the case, should not let it rest.”
During my research for a book on the secret history of the interest rate rigging scandal, I came across excerpts from an interview with Barclays cash trader Peter Johnson. The interview took place on November 19, 2010, and was conducted by the US Department of Justice, the FBI, other US regulators, and the Financial Services Authority (FSA), which was the UK’s financial regulator at the time.
Surprisingly, despite the existence of this interview and supporting published data, the evidence was not presented to jurors in nine criminal trials related to smaller-scale interest rate “rigging” held in London and New York between 2015 and 2019. These trials resulted in the prosecution of 37 traders and brokers by the US Department of Justice and the UK’s Serious Fraud Office.
The suppressed evidence, combined with the available data, suggests that in October 2008, central banks intervened significantly in the setting of Libor and Euribor rates.
Furthermore, additional suppressed evidence indicates the involvement of the UK government, including 10 Downing Street, in pressuring banks to manipulate Libor. This manipulation, as defined by the criminal courts, refers to seeking changes in the benchmark rate while disregarding the appropriate basis for setting Libor.
As a result of court rulings that prohibited any influence on Libor other than the actual interest rates prevalent in the money markets for borrowing and lending cash, nineteen traders have been convicted and nine have been sentenced to jail. This demonstrates the legal consequences of engaging in interest rate “manipulation” by allowing external factors, such as avoiding negative publicity or benefiting a bank’s market trades, to influence the rate.
Speaking in Parliament, senior Conservative MP David Davis said: “I’m greatly concerned the Treasury Select Committee may have been misled by state agencies about the knowledge and involvement of the state in setting false rates. It’s a big and complex issue with hundreds of pages of evidence.”
Mr Davis said that in the light of the evidence he’d seen there was “a case to believe that state agencies coerced individuals into perjury that led to false convictions”.
Mr Davis added he would ask the Met Police to investigate potential perjury, but also called for the Treasury Select Committee to investigate his concern that Parliament may have been misled.
As part of the evidence pointing towards a cover-up, there is a recorded interview from 2010 featuring FBI investigator Mike Kelly interviewing Peter Johnson, who was responsible for submitting Libor rates on behalf of Barclays bank.
During the interview, Mr. Johnson revealed that in October 2008, he received instructions from his superiors to submit artificially low Libor rates, which were significantly below the actual interest rates available in the market. He stated that this action was taken under pressure from the Bank of England and the UK government.
In the recording, Mr Kelly asked Mr Johnson: “Did you have any understanding as to why this pressure was being put upon Barclays?”
“I’m not sure that it was being put just on Barclays,” replied Mr Johnson.
“OK? Who else did you think, was being pressured?”
“We understood that the French banks had been told to get their rates down[…]”
“What entity was pressuring them?”
“We believe it was the Banque du France.”
The information, which regulators did not disclose to Parliament or Congress, is substantiated and supported by the published data on Euribor submissions during that time.
The data reveals that following a coordinated interest rate reduction by six central banks on October 8, 2008, there were significant decreases in French banks’ estimates of borrowing costs for euros. These movements could only be explained by national-level coordination.
While the majority of the other 40 banks monitored maintained their rates, the substantial shifts in Euribor submissions could not be attributed to market factors alone.
Notable changes occurred over a span of three working days:
- BNP Paribas reduced its Euribor rates by 0.4% in a single day, surpassing the 0.35% decrease witnessed after the September 11, 2001 terrorist attacks. Typically, daily Euribor movements are less than 0.1%.
- Credit Agricole, Societe Generale, Credit Industriel et Commercial, and HSBC’s French division all experienced significant drops in their Euribor estimates for borrowing euros over three months.
- Intesa Sanpaolo, an Italian bank, demonstrated unusual and consecutive daily reductions of 0.1% over three days.
On October 11-12, 2008, UK Prime Minister Gordon Brown attended an emergency summit in Paris with European leaders, including then European Central Bank president Jean-Claude Trichet. The participants issued statements emphasizing the necessity for “coordinated” actions to address the crisis.
Following the summit, Banca Monte dei Paschi di Siena and Spanish banks also recorded remarkable decreases in their rates.
During the investigation in November 2010, Peter Johnson informed regulators about JPMorgan Chase’s below-market offer in the dollar Libor market in New York in late October 2008. The US regulator confirmed that it had seen data indicating that JPMorgan Chase had offered to lend at a rate of 4.68%, while providing a much lower Libor estimate of borrowing costs at 3.25%.
According to Mr. Johnson, he believed that the offer to lend at a rate significantly below the market, especially during the crisis when other lenders were reluctant to provide cash, was influenced by the Federal Reserve Bank of New York.
“Were there rumours surrounding Chase at that time?” asked Anne Termine, an investigator for US regulator the Commodity Future Trading Commission.
“Yes,” Mr Johnson replied.
“What were they?”
“That the Fed had asked it to lend money into the market.”
However, it appears that the US authorities did not investigate the rumored intervention of the US central bank in their final notices regarding Barclays. Peter Johnson was not further questioned, and the Department of Justice’s final notices, which imposed fines on banks for Libor manipulation, made no mention of any intervention by a US central bank.
Despite the evidence, none of this information was publicly disclosed in press releases or official statements issued by regulators during the prosecution of 37 traders and the imposition of fines totaling $8.8 billion for manipulating Libor and Euribor. Jurors were unaware of this evidence during the trials.
The Treasury stated that it did not attempt to influence individual bank Libor submissions.
The Financial Conduct Authority (FCA) informed the BBC that it fulfilled its obligations regarding disclosure.
The Bank of England has previously referred to these allegations as “unsubstantiated.”
The Federal Bureau of Investigation (FBI) and the Commodity Futures Trading Commission (CFTC) declined to provide a comment.
The European Central Bank (ECB) has strongly refuted the assertions, stating that they misrepresent the role of a central bank in implementing monetary policy. While not providing specific details, the ECB emphasized that it has consistently acted in accordance with its mandate and in full compliance with the relevant laws.
Italian bank Intesa Sanpaolo asserted that it has always acted independently and in complete adherence to the rules governing rate-setting.