Over eight years after the fact, and over four years after the issue was pressed in Parliament, the Bank of England is once again being accused of complicity in manipulating key interest rates in 2008, part of a vain effort to pretend that all was well while the global financial system burned.
The BBC’s investigative news program Panorama has unearthed a recorded telephone call from Mark Dearlove, a senior manager at U.K. bank Barclays, instructing a subordinate, Peter Johnson, to submit obviously false contributions for the calculation of that day’s “Libor” benchmark, blaming the order on pressure from the BoE and the British government.
By rigging Libor and other benchmark prices over a matter of years, banks were able to defraud their clients, including pension funds, governments and companies—in short, the public—out of billions of dollars. That this happened at all is one of the biggest scandals of the pre-crisis period. But the BBC’s claims go further, suggesting that the U.K. establishment was willing to actively encourage the practice, to mask the scale of the crisis that unfolded after the collapse of Lehman Brothers.
U.K. and U.S. regulators have extracted over $8 billion in fines, and prosecutors have sent half a dozen people to jail, on a narrative that placed the blame for Libor manipulation squarely on the banks that did it. The BBC’s disclosures challenge that narrative—even if they don’t change the fact that banks routinely manipulated the benchmark for profit even when not under existential threat.
More relevantly for today, the issue revives a painfully embarrassing scandal for the City of London precisely at a time when it most needs to play up its qualities as a reliable, law-abiding and well-policed financial center. The last thing it needs is to have Britain’s central bank, the venerable Old Lady of Threadneedle Street, accused of first encouraging dishonest activity and then using the courts to push the blame for it onto others.
The BoE has never accepted the (still unproven) allegations. But they did much to end the career of Paul Tucker, who was the Bank’s rising star in 2008, tipped to become its Governor, and of Bob Diamond, then CEO of Barclays (BCS), one of the U.K.’s largest banks. Both were asked to testify to lawmakers about conversations they had in 2008, and both gave poorly received assurances that they knew nothing about artificially low submissions, known as “lowballing.”
On the tape obtained by the BBC, Dearlove tells Johnson: “The bottom line is you’re going to absolutely hate this… but we’ve had some very serious pressure from the U.K. government and the Bank of England about pushing our Libors lower.”
The conversation took place on Oct. 29, 2008, the same day that Tucker – according to Diamond – told the bank that its Libor submissions “did not always need to be…as high.”
Diamond was forced to resign within weeks of testifying, along with Barclays chairman Marcus Agius and chief operating officer Jerry del Messier. Peter Johnson, meanwhile, pleaded guilty to fraud charges in 2014 and is currently serving a jail term.
The BBC only recently gained the freedom to publish its information, after two other Barclays staffers accused of Libor-related fraud were acquitted last week. The BoE, which stresses that it had no formal role in regulating Libor at the time, said Monday that:
“The Bank is committed to publishing materials relating to the Serious Fraud Office’s investigations into benchmark manipulation when it is appropriate to do so. Until the SFO’s ongoing prosecutorial activity relating to LIBOR and other benchmarks has concluded, the Bank is not in a position to publish these materials.”
It isn’t clear what other circumstances may have weighed on the conversation between Dearlove and Johnson, both of whom would have known that their conversations were routinely recorded for internal purposes.
However, it is perhaps a fortunate distraction for Barclays after the revelation earlier Monday that it had reprimanded and docked the pay of its current CEO, Jos Staley, for trying to identify a whistleblower who criticized his hiring policies to the bank’s board. Staley had been warned by the board that his actions were inappropriate, but after the board decided not to act on the whistleblower’s allegations, he tried again to find out who was behind them, this time with the help of a U.S. law enforcement agency.
Staley, a veteran investment banker from J.P. Morgan Chase (JPM), had hired a number of alumni from his old employer after joining Barclays in 2015. The Wall Street Journal reported Monday that this had caused resentment among co-workers who felt that they were being unfairly overlooked. The WSJ said the letter related to the hiring of former colleague Tim Main (who has since moved on to Evercore Partners), to run Barclays’ financial institutions group.