WASHINGTON – The secretary of the U.S. Treasury, Timothy Geithner, is under pressure for not doing enough to stop the fraudulent manipulation of Libor. Geithner told lawmakers on Wednesday that he alerted the appropriate authorities as early as possible.
Geithner said he realized the problem in 2008 when he was chairman of the Federal Reserve Bank of New York, an influential banking regulator. However, documents released by the Federal Bank show that as early as August 2007, Barclays analysts have already warned the bank about the possible problems with low levels of Libor.
“We became aware of the issue in the spring of 2008, and we carefully reviewed these matters, thinking that the concerns were justified,” said Geithner. “And we took the initiative to bring these concerns to the attention of the U.S. regulatory community, including all agencies that have responsibility for the market’s manipulation and abuse.”
Geithner has repeatedly defended his actions and said he warned the British authorities overseeing the British Bankers’ Association that sets Libor.
Geithner, who is expected to resign if President Barack Obama wins his re-election bid in November, is under heavy attack by members of the Committee on Services of the House of Representatives.
Congressman Jeb Hensarling clung to the fact that the Federal Bank continued to use Libor as a reference for its emergency lending programs, including the rescue of AIG.
“It seems that the early response was to continue using it, which means you took it as a curiosity or something like jaywalking instead of highway robbery,” said Hensarling.
Geithner replied: “I think it was the best choice at that time.”
Libor is a key rate used to set mortgages and other loans around the world. Barclays, Deutsche Bank, Royal Bank of Scotland, Credit Suisse, Citigroup, JPMorgan, and others are among the institutions investigated for manipulating the rate, which will bring a crisis of confidence for the sector, according to experts.
Geithner, who was the head of the Federal Reserve of New York at the time, sent a private email to the Bank of England’s governor, Mervyn King, recommending six ways to improve the credibility of Libor.