Paul Tucker, deputy governor at the Bank of England, has told a UK parliamentary committee examining the manipulation of Libor rates during the 2008 crisis he "categorically denies" inviting Barclays to lower the submissions it gave the British Bankers Association about rates it was paying other UK banks.
Paul Tucker, deputy governor at the Bank of England, has told a UK parliamentary committee examining the manipulation of Libor rates during the 2008 crisis he “categorically denies” inviting Barclays to lower the submissions it gave the British Bankers Association about rates it was paying other UK banks.
Tucker said it was “absolutely not” true that he had put pressure on Barclays to lower its Libor submissions, and nor that any minister of the previous Labour government had put pressure on him to do so.
But as “the world was falling apart” in late 2008, Tucker told the committee, there was concern at the BoE that “Barclays was next in line” after two banks had been nationalised and many had taken State support.
His words mirrored those of former Barclays CEO Bob Diamond in front of the same committee last week, who said he was concerned the government would think Barclays was in trouble if its Libor quotes were too high.
Libor has historically been set in the UK by taking submissions, via the British Bankers Association, separately from 16 banks on the Libor rate they were able to do business at.
There were inferences the BoE and Tucker had implied to Barclays it could lower its own submissions on Libor rates – not least as Diamond said Barclays’ submissions were among the three highest from 16 UK banks each day in October 2008.
Tucker said: “There was commentary in the market that since the beginning to mid-October, since the authorities had wheeled out a pretty powerful package of measures…and also co-ordinated interest rate cuts across the industrialised world, that whereas some market participants felt money market conditions could ease [and] companies’ funding was being provided by the public sector, Barclays had continued to pay higher rates in the market, as reflected in their Libor submissions.”
Tucker is at the committee today because Barclays had noted it had discussions with the BoE during the crisis, and Tucker’s name was revealed.
He said: “HSBC and Abbey National / Santander were seen at that point to be relatively safe in the context of the world falling apart. Two banks had been taken under the explicit wing of the government. That left Barclays.
“During that period on the measure of credit risk, indicated by the CDS market, Barclays was top. The way this crisis unrolled…was ‘as one domino fell, who might the next one be?’
“We were not in the position of thinking Barclays was doomed.
“Had we thought that, the BoE would’ve given very strong advice to the government it was not safe for Barclays not to take capital from the government. But it was a hard call, and there was anxiety.”
Barclays ultimately did not take UK State support, but instead raised cash by issuing equity to Middle Eastern investors from Qatar.
Of his discussions with Diamond during the crisis, Tucker said: “I wanted him to be sure the senior managers of Barclays were overseeing the treasury and money market operations of Barclays, so the Barclays desk did not inadvertently send distress signals [via its Libor submissions]. it is very important not to come across as desperate.”
He noted he had warned a senior manager at one major mortgage bank in the crisis that the bank should not put
Tucker questioned how appropriate it was to set Libor by a set of quotes – some possibly hypothetical rather than actual rates a bank can do business at – provided by traders at 16 UK banks.
“For months sometimes, [some quotes were] based on judgements of where [some banks] could borrow at, rather than the rates they actually borrowed at.
“It would be tremendously important if they [banks] were making wrong judgements about [what rate] they could borrow at.” But he said the process of quoting was made very difficult in cases where markets had effectively dried up.